Computer Sciences

Computer Sciences Corporation reported fourth quarter 2011 EPS of $1.01, exceeding the Zacks Consensus Estimate of 96 cents. The company’s fourth quarter 2011 revenue of $4.20 billion remained flat year over year. Fiscal 2011 was tough for the company as the NHS contract was furthermore delayed.

Additionally, CSC faced challenges regarding its Nordics business and delays in federal budgets. Irrespective of this, CSC recorded positive revenue growth in the Commercial business both sequentially and annually.

The total new business awards for the fourth quarter were $4.0 billion. North American Public Sector contributed roughly $0.9 billion; Business Solutions & Services reported earnings of $1.1 billion and the Managed Services Sector cumulated $2.0 billion of new business.

The awards from new contracts were delayed

The awards from new contracts were delayed. As a result, basic market operating conditions slowed tremendously, impacting both revenue and margins.

The company provided its guidance for fiscal 2012. Computer Sciences expects new business awards of more than $17 billion, revenue in the range of $16.2 - $17.0 billion, operating margin of between 8.75% and 9.25% and EPS of roughly $4.70 - $4.80. Free cash flow is expected to be equal to or greater than 90% of net income for the year.

The company’s U.S.

The company’s U.S. federal business is expected to face challenges and some analysts are concerned about it. The business constitutes around 40% of CSC’s total revenue.

Revenues from this segment may be impacted by tighter U.S. government budgets, which could limit expenditure on innovation, as indicated by Standard & Poors lowering its outlook for America's long-term credit rating to "negative" from "stable."

According to some analysts, key positives for the company include enterprise cloud building, offshore secular ascent, interactive and digital technologies and connected device growth. These analysts are apprehensive about the growth prospects of outsourcing due to intense competition and pricing pressure and exposure to the SMB end-market where new business formation and spending remains muted.

Moreover, some analysts as well believe that CSC should benefit from a large market possibility for IT and business process outsourcing, a stable government business and improving operating margin and cash flow generation.

The intense competition in the IT

We are apprehensive about the intense competition in the IT and cloud computing space from both big and small players just as Accenture and Hewlett-Packard Company. In addition, with government orders drying up in a way and the NHS realization getting delayed furthermore, things look difficult for Computer Sciences.