CSC Order Winning Spree Continues - Analyst Blog

Computer Sciences Corporation (CSC) continues on its contract winning spree. Among the recent deal wins, first comes the U.S. Missile Defense Agency (MDA) infrastructure and deployment services contract, awarded to CSC during the first quarter of fiscal 2010.

The contract is valid for a period of five years and has an estimated total value of $565.0 million for all firms. As per the terms of this contract, Computer Sciences will provide advisory services and assistance services to MDA's Military Construction and Environmental Management Office and other departments of the Government body.

Second in the line of new deal wins is the $115 million contract from the U.S. Department of State Bureau of Consular Affairs. Under the contract, Computer Sciences will provide non-immigrant visa support services in Mexico. The company received this task order, during the second quarter of fiscal 2011, and has a two-year base period with four one-year renewal options.

The company is enjoying good business flow from the mainstream segment, 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.

Some analysts believe that the company's U.S. government business may come under some pressure. The business constitutes around 40% of Computer Sciences'total revenue. Revenues from this business may be impacted by tighter U.S. government budgets, which could limit expenditure on technology and instead channel the funds into defense.

 As of now, the government order flow is quite steady, but Computer Sciences is also concerned about 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. Moreover, we remain encouraged by Computer Sciences' acquisition strategy, which has helped it to expand its portfolio, customer base and geographical reach.

We are cautiously optimistic about the company's outlook for fiscal 2011, its enhanced product portfolio, growing customer base and the revival in the macroeconomic scenario, given the sluggish bookings and relatively lower order renewal rates that suggest relatively slower growth for the Outsourcing segment in 2011.

Moreover, intense competition in the IT and cloud computing space from players such as Accenture Inc. (ACN) and Hewlett-Packard Co. (HPQ) are threats.

The company has a short-term Zacks #3 Rank (Hold rating).