<%@ LANGUAGE=VBScript %> <% Set asplObj=Server.CreateObject("ASPL.Login") asplObj.Protect Set asplObj=Nothing %> Analysis of CSC's 3QFY08 business results (Feb 5, 2008)

Annex Bulletin 2008-03                             February 5, 2008

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Profit, Revenue Surge, Lifting Stock, Too (Analysis of CSC's 3Q08 results)

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Updated 2/06/08, 8:30AM

Analysis of CSC's 3QFY08 Business Results

Profit, Revenue Surge Lifts Stock, Too

Commercial Sector Boosts 3Q Results

SCOTTSDALE, Feb 5 A strong growth (revenues up 18% to $2.73 billion) in the commercial markets boosted Computer Sciences Corp's (CSC) third quarter FY08 results.  Without the favorable currency impact, the revenue increase was 10%.  The North American government sector was also strong, pushing CSC's revenues up by 9% to $1.44 billion.  Global revenues jumped 14% to $4.16 billion from $3.64 billion.

CSC reported late Monday its fiscal third-quarter profit which rose 58% to surpass Wall Street's expectations.  For the quarter ended Dec 28, the company earned $179 million, or $1.05 per share, up from a profit of $113.5 million, or 65 cents per share, in the same period a year earlier.  Excluding restructuring charges, the company earned $1.11 per share in the latest quarter.

The results beat estimates of analysts surveyed by Thomson Financial, who expected profit of $1 per share on sales of $4.06 billion.

Shares rose $2.14, or 5%, to $44.23 in after-hours electronic trading. The stock had closed earlier on Monday down 5 cents at $42.09.  And the stock kept its gains on Tuesday despite a sharp drop in the Dow (down over 300 points).  For the year, however, CSC shares trail the Dow and other major market indices by a considerable margin (see the charts).

 

Meanwhile, the see-saw trends in CSC's commercial vs. government business share trends continue.  In FY08, the momentum seems to be swinging back to commercial sector, which now accounts for about 65% of the company's total revenues.

This is also evident in the company's new contract signings trends.  In the third quarter, CSC closed $2.3 billion of new business, up 44% from a slow quarter a year ago, raising the nine-month total to $10.8 billion.  Last year, CSC had a gangbuster fourth quarter sales that lifted the full year's total to $16.9 billion (see the chart).

To repeat that feat, CSC would need to close about $6.1 billion of new deals in the current quarter.  And that seems like a tall order even for a company that's on a roll, like CSC.

Outlook

CSC executive said they expected fiscal fourth-quarter earnings of $1.33 to $1.43 per share, below analysts' expectations.  The company also forecast revenue in the range of $4.2 billion to $4.5 billion for the quarter, which ends March 28.

Analysts, on average, are expecting a profit of $1.47 per share on sales of $4.4 billion, according to a poll by Thomson Financial.

For the full year, the company forecast a profit of $3.75 to $3.85 per share on sales of $16.2 billion to $16.5 billion, up 9% to 11% from the prior year.

Annex Clients: CLICK HERE for detailed CSC 3Q P&L tables & charts

Happy bargain hunting!

Bob Djurdjevic

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Volume XXIII, Annex Bulletin 2008-03
February 5, 2008

Bob Djurdjevic, Editor
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