Initiating CSC at Neutral - Analyst Blog

We are initiating coverage of Computer Science Corporation (CSC) with a Neutral rating and a price target of $54.50. We believe that the company is fairly valued and is constantly growing through acquisitions which enhance its services portfolio and expand its operations in new markets.

The company reported decent third quarter results, with revenue of $3.95 billion, flat compared to the year-ago quarter. CSC booked new business and saw sequentially positive revenue growth across all business segments except the North America Public Sector. The company’s third quarter EPS of $1.35 exceeded the Zacks Consensus Estimate of $1.23.

Computer Sciences reiterated its guidance for the fiscal year 2010. The company expects to win new businesses of $17.0 to $18.0 billion, and EPS to remain in the range of $4.80 - $5.00. Free cash flow is expected to be equal to or greater than 90% of net income.

The company is one of the largest IT services firms worldwide. A leader in IT outsourcing for the U.S. federal government, CSC has ample exposure to the rapidly growing Department of Defense and Department of Homeland Security budgets. CSC was selected as one of the prime contractors under the Department of Homeland Security (DHS) Enterprise Acquisition Gateway for the Leading Edge Solutions (EAGLE) program.

The company also has a large project pipeline and continues to win new projects at regular intervals. The most recent of them being the $2.9 billion information technology infrastructure management service agreement with Zurich Financial Services Group for a period of 10.5 years.

This apart, CSC has also entered into an agreement with the U.S. Department of Health and Human Services (HHS), whereby the healthcare body awarded the company the Information Technology Infrastructure Operations indefinite-delivery/indefinite-quantity (IDIQ) contract, which has a three-year base period and four incremental one-year options.
 
Falls Church, Virginia-based Computer Sciences Corporation was founded in 1959. The firm offers a broad array of professional services to clients in the global, commercial and government markets. It specializes in Information technology (IT) systems consulting – designing, developing, implementing and integrating information systems. The company also provides Business process outsourcing (BPO) services and manages key functions for clients, such as procurement and supply chain, call centers and customer relationship management, credit services, claims processing and logistics.
 
CSC’s IT and management consulting services advise clients on acquisitions, IT security, strategy and business process re-engineering. The company also licenses sophisticated software systems for the financial services markets and provides a broad array of e-business solutions that cater to the needs of large commercial and government clients.

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