Technology major Computer Sciences Corporation (CSC) has been on a roller coaster over the past few weeks. The company recently announced that a class action lawsuit has been commenced by an institutional investor in the United States District Court for the Eastern District of Virginia on behalf of purchasers of Computer Sciences Corporation common stock during the class period August 11, 2010 and May 25, 2011.
As per this lawsuit, CSC and some of its officers have been accused of violating the Securities Exchange Act of 1934. Further details reveal that during the Class Period, the defendants made false and misleading statements about the company’s financial condition and future prospects. As a result of this so-called misstatement, CSC stock traded at artificially inflated prices, reaching a high of $56.54 per share during the period under consideration.
But after facing an SEC probe into accounting irregularities at the company, following a series of events like delayed realizations under the NHS contract, downward revision of guidance, CSC’s recent quarterly results not meeting street expectations and the disclosure of a lawsuit on May 25, CSC share prices witnessed a sharp decline on May 26 ($5.71 per share, or 12%) to close at $38.38.
As per the lawsuit, the claims made by the defendants during the Class Period relating to the financial condition and prospects for CSC failed to disclose the true facts. The complainant seeks to recover the financial losses incurred by all purchasers of CSC common stock during the period mentioned above and is represented by a law firm Robbins Geller.
On the other hand, the company came out with a new version of the next-generation of RISKMASTER, a software system that helps claims and empower risk managers to make prudent decisions and efficiently and cost effectively administer all aspects of liability and workers compensation incidents and claims. This is expected to grab the attention of risk managers dealing with workers’ compensation program, including general liability, auto liability and hospital incident reporting. We expect the demand for this product to pick up.
So positive developments and new contract wins may boost investor confidence, while the impending lawsuit may act as a dampener. CSC reported mediocre fourth quarter 2011 results. We are concerned about the intense competition in the IT and cloud computing space from both small and big players such as Accenture (ACN) and Hewlett-Packard Company (HPQ). Moreover, with government orders expected to dry up to a certain extent and the NHS realization getting pushed to future quarters, things look difficult for Computer Sciences.
Moreover, the demand for the company’s products in Europe is not encouraging for the upcoming quarters.
The company has a Zacks #5 Rank, implying a short-term Strong Sell rating.
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