More Deals for Computer Science Corp - Analyst Blog

Computer Science Corporation (CSC) maintains its habit of winning deals at regular intervals. The company recently clinched a deal with an intelligence community agency, whereby it is expected to provide a delivery order to provide information technology (IT) services for two new sites in San Antonio, Texas and Augusta.

As per the terms of the agreement, the delivery order has a one-year base period and four one-year options, with the total value amounting to $228.0 million. The company will provide secure and non-secure networks, data centers, desktops, multimedia and telephony. Computer Science Corp. is a trusted government contractor and subcontracting is expanding the company’s market, enabling it to serve new segments.

Moreover, the company has won another task order with an estimated total value of $42.0 million from the U.S. Navy. Under this agreement, the company will provide system software maintenance and engineering jobs at Navy units and commands at the Naval Surface Warfare Center. The order has a one-year base period, with a one-year renewal option.

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 2011.

Computer Science 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 government makes business flow a little uncertain.

The company is also targeting the cloud computing market and expanding through acquisitions. Computer Science has enhanced its product portfolio, and increased its customer base. Therefore, it should be able to grow its business in line with the economic recovery.

Consequently, we have a Neutral rating on Computer Science. We also have a short-term Hold rating on the shares, as indicated by the Zacks #3 Rank.