Computing major Computer Sciences Corporation (CSC) recently announced that it has signed a seven-year information technology (IT) outsourcing contract extension with Tryg, which is the second-largest insurance company in the Nordic region. The extension agreement is valued at $348.0 million and includes services to Tryg’s recent acquisitions in Finland and Sweden.
The contract includes some dynamic new technologies offered by CSC, such as the CSC Dynamic Desktop and some private cloud technologies, which are expected to enhance IT cost efficiency and provide flexible support to increase efficiency and business development of Tryg.
As per this agreement, CSC will continue to provide IT infrastructure services, encompassing segments like help desk, mainframe, midrange, network, Web hosting, project work, print and distributed computing. CSC is expected to extend this service to more than 4,500 customers in Denmark, Norway, Sweden and Finland.
CSC is deploying both organic and inorganic growth strategies to augment its business. Most recently it made a bid to acquire Australian Healthcare IT solutions provider, iSOFT. The acquisition is valued at AUD 0.17 per share in a court-approved scheme of arrangement, which is tantamount to a total transaction value of $400 million, with an equity participation of $150 million and the remaining $250mm being funded with debt.
This acquisition will enable CSC to access iSOFT’s cloud computing, cyber security, and healthcare assets. We believe this acquisition is expected to be important for expanding its presence in the healthcare industry.
These customer wins and acquisitions are expected to provide the much-needed impetus to CSC’s product and service portfolio, while at the same time strengthening its revenue base going forward. We believe the company’s aggressive marketing, high quality of technology enabled solutions and greater customer satisfaction are doing wonders.
CSC has an extensive position in the government segment. Although this adds some stability to the revenue stream, these contracts are subject to extensive legal and regulatory hurdles, which are stringent and subject to changes from time to time. Moreover, the time taken to secure a new government contract is substantial, as the government’s decision-making process is lengthy.
This apart, the U.S. government investigates operations from time to time to ensure that terms and conditions have been properly adhered to. Deviations from the terms laid out by the government may result in huge penalties or termination of contracts. This is an element of risk associated with government contracts.
While revival in IT spending across the globe, healthy PC shipments and a robust business model are all working in favor of the company, competition from companies such as Accenture (ACN) and Hewlett-Packard Company (HPQ) continues to increase.
Currently, CSC has a Zacks #4 Rank, implying a short-term Sell rating on the stock.
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