Computer Sciences Corporation (CSC) has seen another spate of government contract wins.
First among these was a contract awarded by the State of California, wherein Computer Sciences will assist the State Department in migrating several e-mail applications in the cloud-based platform with the help of the Microsoft Business Productivity Online Suite.
The deal, the pecuniary details of which were not divulged by the company, is expected to improve information technology infrastructure and increase government efficiency. This is a win-win situation, as it gives Computer Sciences an opportunity to explore new businesses, while helping the state government to save cost and consolidate IT functions.
Second in line is a $54.0 million contract awarded by the National Institute of Health for its Biomedical Translational Research Information System and Clinical Research Information System programs. The company won this contract during the second quarter of fiscal 2011.
The deal is initially valid for a one-year base period, along with four one-year renewal options. This agreement enables Computer Sciences to resolve issues related to systems integration, project management and integrated data repository development for clinical research centers.
The company is enjoying good business flow from the mainstream industry, but the outsourcing industry looks disappointing. Sluggish IT outsourcing bookings and weak order renewal rates suggest relatively slower growth for this segment in fiscal 2011.
Computer Sciences is also concerned about lower bookings and delays in government order placement. On the other hand, the company continues to see a steady flow of business from mainstream segments such as healthcare, hospitality, logistics systems, intelligence and IT security markets.
This apart, some analysts are concerned about pressures in the U.S. federal business, which accounts for about 40% of total revenue. The analysts are of the opinion that revenues may be impacted by tighter U.S. government budgets, which are increasingly being set aside to finance the fiscal deficit. Moreover, funding for defense expenditure and a more stringent order procurement procedure implemented by the Obama administration makes business flow slightly uncertain.
On the other hand, we are cautiously optimistic about the company, based on the positive outlook for fiscal 2011, its enhanced product portfolio, growing customer base and the gradual recovery in the macroeconomic scenario. Moreover, Computer Sciences has been augmenting these strengths with a number of acquisitions that have enhanced its services portfolio and expanded its operations into new markets.
We have a long-term Neutral rating on Computer Sciences shares. We also have a short-term Hold rating on the shares, as indicated by the Zacks #3 Rank.
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