Stock Update (NYSE:CSC): Computer Sciences Corporation Delivers Earnings Growth, Margin Expansion and Improved Cash Flow Performance in F1Q:16


Computer Sciences Corporation (NYSE:CSC) reported results for the first quarter of fiscal year 2016.

“First-quarter results were consistent with our expectations for the start of fiscal 2016,” said Mike Lawrie, president and CEO. “Profitability improved year-over-year in our commercial business and remained strong in our public sector business, and we also delivered strong cash flow. We filed our Form 10 and continue to target October for the completion of our separation into two publicly traded, pure-play companies. Finally, our new core-banking-software joint venture with HCL and our intention to acquire Fixnetix and Fruition Partners are prime examples of how we are investing to shape CSC’s post-separation commercial business, best serve our global clients, and capitalize on growth opportunities in the marketplace.”

FINANCIAL HIGHLIGHTS

  • Diluted earnings per share from continuing operations were $1.14 in the first quarter, up 11 percent from $1.03 in the year-ago period. Diluted earnings per share from continuing operations included the impact of certain non-recurring items, including ($0.09) per share in separation costs, $0.10 per share from a gain on a divested business, and $0.01 per share in SEC settlement-related items. Non-GAAP diluted earnings per share from continuing operations exclude these items and were $1.11, up 8 percent when compared with $1.03 in the first quarter of fiscal 2015.
  • Income from continuing operations before taxes was $228 million, up 7 percent from the year-ago period.
  • Operating income of $298 million compares with $304 million in the prior year. Operating margin of 10.8 percent for the quarter increased from 9.4 percent in the prior year.
  • Income from continuing operations was $164 million for the first quarter compared with $159 million in the prior year.
  • Earnings before interest and taxes (EBIT) of $252 million compares with $248 million in the first quarter of fiscal 2015. EBIT included the impact of certain non-recurring items, including $18 million in separation costs, a $22 million gain on divestiture, and $3 million in SEC settlement-related items. Adjusted EBIT, which excludes the impact of these items, was $245 million, and adjusted EBIT margin of 8.9 percent improved from 7.7 percent in the prior year.
  • Net cash provided by operating activities was $324 million in the first quarter, an improvement of $51 million, or 19 percent, from the prior year. The increase in net cash provided by operating activities was driven by better working capital management.
  • Free cash flow was $120 million in the first quarter, an increase of $50 million from the prior year. The increase in free cash flow was driven by higher net cash provided by operating activities as well as lower capital expenditures.
  • As a result of CSC’s fiscal year convention, last year’s first quarter contained an extra week.

GLOBAL BUSINESS SERVICES

GBS revenue of $919 million in the quarter compares with $1,088 million in the year ago quarter, a decline of 7.5 percent year-over-year in constant currency. The GBS revenue decline was driven by the ongoing repositioning of our consulting business, contract completions in our applications business, and the impact of the extra week, partially offset by growth in industry software and solutions. Adjusting for the full impact of the extra week, GBS revenue declined approximately 4 percent year-over year on a constant currency basis. GBS operating margin of 10.6 percent increased from 9.9 percent in the prior year, driven by slightly higher utilization and the ongoing benefit of our cost takeout actions. New business awards for GBS were $0.9 billion in the first quarter.

GLOBAL INFRASTRUCTURE SERVICES

GIS revenue of $885 million in the quarter compares with $1,131 million in the year-ago quarter, a decline of 15.3 percent year-over-year in constant currency. The GIS revenue decline was driven by the impact of restructured contracts, other contract completions, and price-downs, as well as the extra week, which more than offset growth in our traditional infrastructure business and next-generation offerings. Adjusting for the full impact of the extra week, GIS revenue declined approximately 12 percent year-over-year in constant currency. GIS operating margin was 6.0 percent in the quarter compared with 6.3 percent in the prior year. New business awards for GIS were $1.4 billion in the quarter.

NORTH AMERICAN PUBLIC SECTOR

NPS revenue was $957 million in the first quarter, a decrease of 6.0 percent when compared with $1,018 million in the first quarter of fiscal 2015. New tasking, higher volumes, and added scope on several contracts, particularly in our civilian business, partially offset reduced tasking and wind-downs on other programs, as well as the impact of the extra week. Adjusting for the full impact of the extra week, NPS revenue declined approximately 2 percent year-over-year. NPS operating margin of 14.2 percent compares with 14.8 percent in the prior year. New business awards for NPS were $1.0 billion in the quarter.

RETURNING CAPITAL TO SHAREHOLDERS

During the first quarter, CSC returned $150 million to shareholders, consisting of $32 million in common stock dividends and $118 million of share repurchases. CSC repurchased 1.8 million shares through open market purchases at an average price of $66.34. CSC had 138,053,490 basic shares outstanding on July 3, 2015.

“Looking ahead, we continue to target non-GAAP EPS from continuing operations of $4.75 to $5.05 for fiscal 2016, and our free cash flow target remains unchanged at $750 to $800 million,” Lawrie said. “As we continue to make good progress toward our planned separation later this year, we remain committed to serving our clients, investing where appropriate to position for growth, and delivering value for our shareholders.” (Original Source)

Shares of Computer Sciences closed today at $64.2, down $1.16 or 1.77%. CSC has a 1-year high of $73.29 and a 1-year low of $54.23. The stock’s 50-day moving average is $66.08 and its 200-day moving average is $66.07.

On the ratings front, Computer Sciences has been the subject of a number of recent research reports. In a report issued on August 7, Citigroup analyst Ashwin Shirvaikar upgraded CSC to Buy, with a price target of $77, which implies an upside of 19.9% from current levels. Separately, on August 3, Deutsche Bank’s Bryan Keane maintained a Hold rating on the stock and has a price target of $73.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Ashwin Shirvaikar and Bryan Keane have a total average return of 22.7% and 15.6% respectively. Shirvaikar has a success rate of 81.3% and is ranked #90 out of 3729 analysts, while Keane has a success rate of 81.5% and is ranked #201.

Overall, 3 research analysts have assigned a Hold rating and one research analyst has given a a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $72.33 which is 12.7% above where the stock opened today.

Computer Sciences Corp provides information technology (IT) and professional services and solutions. The Company’s reportable segments are Global Business Services (GBS), Global Infrastructure Services (GIS), and North American Public Sector (NPS).