On Mar 13, 2014, we issued an updated research report on Computer Sciences Corp. (CSC) after its mixed performance in the third quarter.
Although the company’s revenues declined year over year, better cost management though business realignment strategy had resulted in a year-over-year increase in its bottom line.
Fiscal year-to-date, the company has reduced cost by approximately $415 million and management now expects the savings to be at the higher end of the guided range of $500–$550 million for the full year.
Moreover, the company is reinvesting these savings in strategic areas to propel growth. Year-to-date, Computer Sciences had $195 million and plans to reinvest approximately $300 to $325 million. Given the fact that revenue growth initiatives may take some time to gain momentum, these cost-cutting actions will go a long way toward earnings per share growth.
It is noteworthy that the company is focusing on cyber business, cloud computing market and Big Data business. Computer Sciences’ cyber business gets its primary contribution from the federal government and, to an extent, the commercial sector.
Moreover, the company’s continuous share buybacks and dividend payments are expected to support earnings and instill investors’ confidence.
However, the market is becoming competitive with companies like CACI International Inc. and Accenture making their presence felt. Delay in the government’s order renewal process and constricted federal spending are the near-term headwinds for the company.
Despite sales team reorganization, the revenues remain subdued. Full effect of the sales team restructuring could take more time than expected which is a near-term concern.
Currently, Computer Sciences sports a Zacks Rank #2 (Buy).