JP Morgan Comments On Computer Sciences Following Negative Earnings Preannouncement

JP Morgan continues to on the sidelines with a Neutral rating. Computer Sciences CSC preannounced its FY11 results, with all headline numbers now expected to be lower than the company's previous estimate. It expects a negative stock price reaction in mid-single digits, but it hoping the FY12 guidance will be conservative enough to set an achievable target. CSC lowered its FY11 outlook yet again, after a significant miss and downward revision in Feb., hurting management credibility and estimates. While lower scope and profitability at NHS is not surprising, the new NHS contract could be even more volatile given the client retained volume flexibility. Very weak FY11 booking guidance could cloud FY12 revenue growth outlook. The company's analyst day will be held before the new earnings announcement date. JP Morgan believes postponing the F4Q results announcement likely indicates the company's expectation of signing the MoU by 05/25. CSC indicated the new NHS pricing will still be accretive to its long-term margin target. Moreover, various headwinds that hurt FY11 growth could result in easy compares for FY12 revenue growth/margin expansion. JP Morgan has a Neutral rating on CSC CSC closed Monday at $50.55