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Computer Sciences (CSC) Tops on Q3 Earnings & Revenues

Zacks Equity Research

Computer Sciences Corporation CSC reported third-quarter of fiscal 2017 non-GAAP earnings from continuing operations of 81 cents per share, which surpassed the Zacks Consensus Estimate of 71 cents per share.

Computer Sciences’ stock price history reveals that the company hasn’t disappointed in a long time. In fact, over the past one year, shares of Computer Sciences have risen 97.3%, outperforming the Zacks Categorized Computer-Services industry, which has showcased an increase of just 25.7%.

Quarter Details

Revenues were up 9.5% from the year-ago quarter to $1.971 billion and beat the Zacks Consensus Estimate of $1.898 billion.

Segment-wise, revenues from Global Business Services (GBS) increased 18.1% on a year-over-year basis to $1.046 billion, driven by synergies from the recent acquisitions (UXC and Xchanging). Revenues from the new business for GBS came in at $1.1 billion during the quarter.

Global Infrastructure Services (GIS) revenues were up a marginal 0.8% from the year-ago quarter to $871 million, primarily attributable to growth in next generation offerings and synergies from recent acquisitions. Revenues from new business for GIS awards came in at $1.3 billion during the quarter.

The company reported bookings of $2.4 billion in the quarter.

The company’s adjusted operating income increased 13.7% year over year and came in at $216 million. Operating margin increased 41 basis points (bps) on a year-over-year basis to 11.3%.

Adjusted net income from continuing operations came in at $123 million or 81 cents a share during the quarter.

The company exited the quarter with $1.11 billion in cash and cash equivalents compared with $1.05 billion in the previous quarter. Long-term debt balance (including current portion) was $2.923 billion. Net cash provided by operating activities during the quarter came in at $563 million. Free cash during the quarter came in at $299 million.

During the quarter, Computer Sciences paid $20 million as dividends.

Outlook

Computer Sciences reiterated its fiscal 2017 guidance. For fiscal 2017, the company continues to expect revenues to be up in low double digits on a constant currency basis.

The company continues to expect non-GAAP earnings in a range of $2.75 to $3 per share (excluding the amortization of all purchase accounting intangibles). The Zacks Consensus Estimate is pegged at $2.75 per share.

Our Take

Computer Sciences Corporation is one of the leading players in the information technology services industry. The company reported better-than-expected third-quarter of fiscal 2017 results and reiterated its fiscal 2017 guidance.

The merger with Hewlett Packard Enterprise Company’s HPE business will further strengthen its business, allowing it to become a leading player in the IT services domain. Apart from this, the company has been making strategic acquisitions to strengthen its portfolio, which should drive growth over the long run.

Additionally, the company’s traction in the cloud and partnerships with HCL, AT&T T, VMware VMW and Microsoft are expected to drive growth, going forward.

However, the company will likely face some challenges with regard to the integration of the new businesses and the costs associated with them. Apart from this, increased competition, delay in government’s order renewal process and constricted federal spending are the other concerns.

Currently, Computer Sciences has a Zacks Rank #4 (Sell).

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