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DXC Technology (DXC) to Report Q1 Earnings: What's in Store?

Zacks Equity Research

DXC Technology DXC is scheduled to report first-quarter fiscal 2020 results on Aug 8.

Notably, the company beat estimates in each of the trailing four quarters, the average positive surprise being 7.12%.

In the last reported quarter, it came up with a positive earnings surprise of 5.8%.

The company reported non-GAAP earnings of $2.19 per share, which surpassed the consensus estimate of $2.07. However, the figure declined from $2.28 reported a year ago.

At $5.28 billion, revenues lagged the prior-year quarter figure by 5.4%, and also slipped 1% on constant currency basis. Moreover, the metric missed the Zacks Consensus Estimate of $5.31 billion.

The quarterly results were mainly driven by demand strength in the company’s digital solutions. However, continued headwinds in traditional application services business affected revenues.

The Zacks Consensus Estimate for the fiscal first quarter revenues stands at $4.87 billion, indicating a 7.88% decline from the year-ago reported figure. The consensus mark for earnings is $1.71, suggesting an 11.4% decline.

Let's see how things are shaping up for the upcoming announcement.

DXC Technology Company. Price and EPS Surprise

DXC Technology Company. Price and EPS Surprise

DXC Technology Company. price-eps-surprise | DXC Technology Company. Quote

Factors Likely to Drive Results

DXC Technology is benefiting from strength in the Digital business, driven by growth in cloud infrastructure and digital workplace offerings. The completion of its acquisition of Luxoft during the fiscal first quarter is expected to have boosted the digital solutions business.

Moreover, the company continues to expand its digital transformation centers and capabilities and build on its collaborations with partners, namely Amazon’s AMZN AWS and Microsoft’s MSFT cloud division Azure. This is likely to have further boosted its Digital business in the to-be-reported quarter.

Further, continued digital deal wins are expected to enhance the fiscal first-quarter top line.

Moreover, Asia and Southern Europe are displaying a strong traction in Cloud infrastructure business, and this trend is likely to aid the segment in the upcoming results.

Additionally, DXC Technology continues to ramp up revenues on some of the large insurance BPS contracts to offset declines in its generic BPS business, especially in the United Kingdom and Europe. This is expected to boost bookings in this segment.

However, margins are expected to contract due to DXC Technology’s continued investments in digital hiring and expansion of digital transformation capabilities. The company expects adjusted fiscal first-quarter EBIT margin to decrease sequentially to around 14%.

Ongoing headwinds in legacy application services are expected to have hurt GBS (Global Business Services) bookings in the to-be-reported quarter.

Moreover, DXC Technology is accelerating the program of helping customers make upfront savings to procure a greater share of their IT spend on Digital. This might result in a decline in upfront revenues in the fiscal first quarter, post which, it is expected to recover some of the loss throughout the year. The company also expects currency headwinds to be an overhang on the top line.

What the Zacks Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

DXC Technology has a Zacks Rank #4 and its Earnings ESP is +0.92%.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stock to Consider

Here is a stock which you may consider as our model shows that it has the right combination of elements to post an earnings beat in their upcoming release:

CACI International, Inc. CACI has an Earnings ESP of +4.02% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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