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Is the Time Ripe to Build Positions in DXC Technology (DXC)?

Zacks Equity Research

If you are planning your portfolio, then DXC Technology Company Common S DXC can be a wise pick. The indicators of a stock’s bullish run include a rise in its share price and continued uptrend in estimates.

Hewlett Packard Enterprise Company HPE recently completed the spin-off and merger of its Enterprise Services (ES) business with Computer Sciences Corporation (CSC). The new company formed post this deal was DXC Technology, began trading on the New York Stock Exchange (NYSE) from Apr 4, 2017.

DXC Technology offers a wide array of professional services to clients in the global commercial and government markets and specializes in the application of advanced and complex I/T to achieve its customers' strategic objectives. It also provides digital transformations, creating greater value for clients, partners and shareholders, and presenting new growth opportunities for customers.

DXC Technology registered solid returns of approximately 125.1% in the last one year, outperforming the Zacks categorized Computer – Services industry’s gain of just 21.7%.

Let’s have a look why the potential investors should add this company to their portfolio?

Estimate Revisions

In the last 30 days, the Zacks Consensus Estimate for DXC Technology’s first-quarter and fiscal 2017 witnessed upward revisions. The Zacks Consensus Estimate for first-quarter and fiscal 2017 is pegged at $1.44 and $2.87, respectively, up from 70 cents and $2.79, respectively, projected over the same time frame.

Driving Factors

Post merger, the combined entity (DXC Technology) will become the world’s second-largest IT services company after Accenture plc ACN.

This deal will bring together DXC Technology’s strengths in insurance, healthcare and financial services and HPE’s Enterprise Services expertise in industries like transportation, pharma, technology, media and telecom.

For the last few years, Computer Sciences has been focusing on cloud computing and the Big Data business to cash in on growing demand. Companies are increasingly relying on cloud-based services to make IT systems more agile and productive, and save costs considerably.

We believe that the merger with HPE’s business will strengthen DXC Technology’s capabilities, allowing it to become a leading player in the IT services domain.

Recently, DXC Technology expanded its strategic alliance with Amazon AMZN Web Services "to make it simpler for DXC's enterprise customers to unlock the efficiencies and innovation of the cloud." The company added, "DXC now will offer its enterprise clients, from its data centers, integrated solution options using AWS Storage Gateway, AWS Snowball Edge and AWS Greengrass for edge computing."

DXC Technology also delivered positive earnings surprises in the last four quarters with an average beat of 16.6%.

Moreover, from a valuation perspective, the stock looks attractive as it currently trades significantly lower than the industry average based on a forward earnings estimate. This signifies huge upward potential. DXC Technology currently trades at a forward P/E of 20.86x compared with the industry group average of 28.10x.

Hence, there is still a lot of momentum left in this Zacks Rank #1 (Strong Buy) stock, which is evident from its long-term earnings growth rate of 8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Keeping these positives in mind, we believe that DXC Technology is one such technology stock that deserves a place in investors’ portfolio.

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