Computer Sciences Corporation (CSC) reported third quarter 2010 EPS of $1.54, exceeding the Zacks Consensus Estimate of $1.48, while revenue of $4.01 billion remained below the Zacks Consensus of $4.15 billion.
Revenue
The company’s third quarter 2011 revenue of $4.01 billion was up 1.5% compared to the year-ago quarter, driven by respectable revenue growth in the company’s Commercial businesses.
North American Public Sector (NPS) revenue was $1.48 billion, up 0.3% compared to the year-ago quarter. Managed Services Sector (MSS) revenue was $1.65 billion, up 2.2% from the year ago quarter. Business Solutions and Services (BSS) revenue was $0.89 billion, down 1.4% compared to the year-ago quarter.
New Business
The company saw $2.3 billion worth of new business in the third quarter. Of this, NPS accounted for $0.5 billion , BSS $0.8 billion and MSS $1.0 billion.
Operating Results
CSC recorded an operating margin of 6.6%, down 172 basis points from 8.32% reported in the year-ago quarter. The margin was negatively impacted by increase in the cost of services, coupled with the increase in the selling, general and administrative expenses.
Computer Sciences reported net income attributable to the company’s shareholders of $242.0 million, which was up 14.7% from $211.0 million reported in the year-ago quarter. The third quarter EPS was $1.54, up from $1.36 reported in the year-ago quarter.
Balance Sheet
The company exited the quarter with $1.63 billion in cash and cash equivalents, down from $2.43 billion reported in the previous quarter. CSC has a total debt balance of $2.34 billion, or a debt-to-capitalization ratio of 28.0%.
Guidance
The company provided its guidance for fiscal year 2011. Accordingly, Computer Sciences expects new business awards in excess of $16 billion, revenue of approximately $16.2 billion, operating margin of between 8.0% and 8.5% and EPS of approximately $5.20. Free cash flow is expected to be equal to or greater than 90% of net income for the year.
Our Recommendation
The company sees decent flow of new business, especially in the government vertical, and also retains a financially sound position. On the other hand, we are a bit concerned about the intense competition in the IT and cloud computing space with both big and small players such as Accenture (ACN) and Hewlett-Packard (HPQ) having dominance there.
The company currently has a Zacks #3 Rank (short-term Hold recommendation).
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