We reiterate our Neutral recommendation on Computer Science Corporation (CSC) following mixed second-quarter results. Although CSC’s earnings per share beat the Zacks Consensus Estimate, revenues missed the consensus mark. Moreover, a volatile economic scenario and company’s European exposure keep us on the sidelines.
Currently, CSC has a Zacks Rank #3 (Hold)
Why the Reiteration?
Computer Science’ earnings increased 34.8% in the second-quarter of fiscal 2014 to 93 cents per share from the year-ago quarter, driven by margin expansion. Revenues on the other hand declined 9.7% from the year-ago quarter to $3.19 billion, primarily due to weak performances across all its business segments.
Computer Sciences is adopting a cloud-based model and re-engaging the salesforce in a more efficient way. This, along with restructuring actions is positively supporting margin expansion. Moreover, share buybacks and dividends are other positives for investors.
However, competition from its peers like Accenture plc (ACN) and uncertainty on federal spending are the major headwinds for the company.
Management provided cautious outlook for fiscal 2014. Revenues are expected to decline marginally on a year-over-year basis. Computer Sciences’ fiscal 2014 earnings is expected in the range of $3.50-$3.70 per share, which is significantly up from fiscal 2013.
This weak revenue guidance resulted in negative estimate revisions for the current quarter. Most of the estimates were revised downwards over the last 60 days. The Zacks Consensus Estimate declined 6.6% (6 cents) to 85 cents for the upcoming third quarter.
However, for the full year, the Zacks Consensus Estimate jumped couple of cents to $3.69. Given the mixed signals, we reiterated our Neutral recommendation.
Better ranked stocks in the technology sector are SanDisk Corp. (SNDK) and Marvell Technology Group Ltd. (MRVL) both carrying a Zacks Rank #2 (Buy).
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