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Analysis of Computer Sciences Corp.’s 3Q2K Business Results

Solid Growth Again, But…

Also, CSC 1999 CIO Survey: “Death Merchants” – Biggest Budget Increases

W. AUSTRALIA, Feb. 29 – On Jan. 31, Computer Sciences Corp., reported its third quarter fiscal year 2000 financial results, which reflected a continuation of the double-digit growth which this IT services company has delivered throughout the 1990s.  Revenues were up 15%, while the net profit jumped 20%, excluding the special charges, related to the November 1999 acquisition of Nichols research ($41 million) which the company took in the latest period. 

And even with such charges taken into account, and a 34.4% tax rate, almost one point higher than that a year ago, plus the unfavorable foreign currency translations in Europe, CSC’s nine-month of FY2K bottom line was still up in double digits (11%) over the corresponding period last year. Not a spectacular growth, but a solid growth, to be sure, especially compared to its peer-competitors, such as IBM or EDS, for example (7.2% and 9.7% respectively in 1999, with IBM revenues actually shrinking 4% in the same calendar three-month period for which CSC has reported its latest results).

Yet, the stockmarket “rewarded” CSC with a 19% drop in its share prices during the month of February, as compared to a 10% drop in EDS’s stock prices and a 7.5% decline in the Dow Jones Industrials’ Average during the same period (see chart on page 2).

Perhaps the only bona fide bone which Wall Street could pick with the CSC 3Q2K results, to justify such a thrashing of its stock, were its new business sales.  Even though the $3.5 billion that the company won in new contracts during the last three months of 1999 compares favorably with previous quarters, the amount pales by comparison to the whopping $11.2 billion and $10.3 billion in new contracts that EDS and IBM had signed respectively during the same time frame.

Unless the CSC win rate improves in the last quarter of its fiscal year 2000, which ends March 31, this factor could put a crimp in the company’s future growth rates.

Such fears could be reinforced by some of the potentially worrying sub-elements of CSC’s latest results.  The growth of its U.S. commercial revenue, for example, now by far the most important part of CSC’s business, was only 10.7% in the latest quarter.  This compares to a global commercial revenue growth rate of 17.4%, to a European increase of 7.5%, and to a rise in CSC’s U.S. federal government business of 7%.  And to a 114% revenue jump in other international markets.

In other words, CSC is doing well in the 9%-part of its business, while lagging behind in 91% of its geographic segments.  Which could put a significant crimp in CSC’s growth plans were such a trend to continue.

[...]

Our report then goes on to conclude:  

So CSC is doing well in the 9%-part of its business, while lagging behind in 91% of its geographic segments.  Which could put a significant crimp in CSC’s growth plans were such a trend to continue.

So for once, maybe Wall Street isn’t zigging when it should be zagging.

[...]

Here are some of the sub-headings from the rest of this Annex Bulletin, including our analysis of the CSC 1999 survey of CIO from 803 enterprises around the world:

CSC’s 1999 CIO Survey: The Year of “Death Merchants”

Geographic Segment Analysis

Web and e-Business

  • North America and Australia.  

  • Europe and Asia. 

  • e-Business. 

  • Web Use by Industry.

[...]

"That's all she wrote," we're afraid, for those of you who are NOT Annex Research clients, and who are now reading the complete Annex Bulletin, along with 16 charts and 2 tables which back up our analysis in the 11-page print edition of this particular report.

To find our how you can become one of our clients, and read the rest of this and other Annex Bulletins, click on . Thank you.

Happy bargain hunting!

Bob Djurdjevic


NOTE: The print edition of this report, of course, contains additional charts and tables not included here.

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Volume XVI, No. 2000-07
February 29, 2000

Editor: Bob Djurdjevic
Published by Annex Research;
e-mail: annex@djurdjevic.com

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