<%@ LANGUAGE=VBScript %> <% Set asplObj=Server.CreateObject("ASPL.Login") asplObj.Protect Set asplObj=Nothing %> Analysis of CSC's 4Q07 business results (June 13, 2007)

Annex Bulletin 2007-25                             June 13, 2007

Excerpts from CONFIDENTIAL CLIENT edition (Annex clients click here)

Recent...

New Broom Sweeps Clean - Analysis of CSC's 4Q07 business results [Annex clients click here]

The Last of the (PC) Mohicans - Analysis of Dell's strategy changes; Linux, Wal-Mart

IT SERVICES

Updated 6/13/07, 8:00PM PDT

Analysis of Computer Sciences Corp.'s Fourth Quarter Results

New Broom Sweeps Clean

New Executive Team Takes Charge and Charges against Earnings; Yet Stock Down in After-hours Trading

SCOTTSDALE, June 13 - Van Honeycutt, Computer Sciences Corp.'s outgoing chairman, may still be technically in or near his chair (till July 31), but his legacy is already getting eroded by the new executive team, led by Mike Laphen, the new CEO (click on right thumbnail).  Laphen had served as the company's COO for the last three years prior to being appointed CEO in late May.

"A new broom sweeps clean," goes an old saw.  The new CSC leaders have done just that.  They wasted no time taking charge and charges against earnings while sweeping clean the company's boardroom.

[chart here]

Their post-earnings teleconference was market by an unusual candor, which included some "mea culpa" statements, such as this one: 

"CSC discovered significant errors in its accounting for tax liabilities in fiscal years 2000 through 2006 and other insignificant errors. The most significant of these errors related to the tax accounting for the amortization of tax bases of assets contributed to a consolidated affiliate. 

[snip]

Stock Slips Despite Good Quarterly Results

Wall Street generally likes charges, so it traded CSC shares up 2.4% to $56 in regular on rumors about a good quarter and write-offs.  But then investors turned around and sold the stock off, down 2.8% to $54.5 in after-hours trading, after the fourth quarter facts were disclosed.  So our old adage "up on rumors, down on facts" once again came true.

[chart]

Nevertheless, CSC shares are now still at about the same level as a year ago, when the company tried and failed to sell itself off, and then resorted to stock buybacks as its "plan B" strategy (see above chart).

[snip]

Revenue Shortfall Sinks Shares

And what was so disappointing about the fourth quarter facts?  Actually, not much.  We thought it was a pretty good quarter.  Revenue was a little light relative to Wall Street expectations, but new contract sales by far exceeded them, thus implying solid revenues and profits in the future.  While revenue rose to $4.05 billion from $3.89 billion, it missed slightly Wall Street's average estimate of $4.1 billion.

[snip]

Business Segment Analysis

U.S. government sector revenues increased 5% to $1.43 billion in the fourth quarter, up from $1.37 billion in fiscal 2006. The Pentagon-related business was $978 million, up over 6% from the year-ago total, while revenues from civil agencies were $415.1 million, down slightly compared to last year.

[snip]

Outlook

For the first quarter, CSC projects revenue in the range of $3.7 billion to $3.8 billion, in line with analysts' current consensus estimate. The company expects earnings of 65 cents to 75 cents a share, excluding special items, vs. analysts' views of 76 cents.

[snip]

"That's all she wrote," we're afraid, for those of you who are NOT Annex Research clients, who are now reading the complete Annex Bulletin, along with many tables and charts that back up our forecast.  

Qualified media and friends of Annex may request a TEMPORARY User ID and Password by clicking here and explaining why they wish to have access to this particular Annex Bulletin.  Or call Bob Djurdjevic at 602-824-8111 (cell) to promise not to copy it or otherwise republish it.

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.

Annex clients click here

Happy bargain hunting!

Bob Djurdjevic

For additional Annex Research reports, check out... Annex Bulletin Index 2007 (including all prior years' indexes)

Or just click on SEARCH and use "company or topic name" keywords.

Volume XXIII, Annex Bulletin 2007-25
June 13, 2007

Bob Djurdjevic, Editor
(c) Copyright 2007 by Annex Research, Inc. All rights reserved.
e-mail: annex@djurdjevic.com

8183 E Mountain Spring Rd, Scottsdale, Arizona 85255
Tel/Fax: +1-602-824-8111

The copyright-protected information contained in the ANNEX BULLETINS is part of the Comprehensive Market Service (CMS).  It is intended for the exclusive use by those who have contracted for the entire CMS service.

Home | Headlines | Annex Bulletins | Index 1993-2007 | Special Reports | About Founder | SearchFeedbackClips | Activism | Client quotes | Speeches | Columns | Subscribe 

Also check out...

BRIC by BRIC... to Top Line Growth - Echoes from IBM meeting for fin analysts [Annex clients click here]

Per Ardua Ad Astra - Analysis of HP's 2Q07 business results [Annex clients click here] 

The Greening of Big Blue - IBM to spend $1 billion on "going green"

Are We in "Buyback Bubble?" - Analysis of corporate stock buyback trends

IBM: Lowering Center of Gravity - Highlights of Partnerworld 2007, with Detailed Reports for clients

Growth Accelerating - Analysis of Capgemini's 1Q07 business results [Annex clients click here]  

To Buy (back shares) or Not to Buy? - Analysis of stock buybacks in corporate America

No Surprises in Good Opening Quarter - Analysis of IBM 1Q business results [Annex clients click here]

IBM Stock Still Grossly Undervalued (A preview of IBM first quarter business results]

Accenture Beats Forecasts, Again (Analysis of Accenture's 2QFY07 results)

HPS, Capgemini Tie for "Gold" - Results of Octathlon 2007 [Annex clients click here]

The Value of pi (π) - Analysis of IBM System p and System i market and product strategies

IBM Profit to Grow Faster Than Revenue - Update to 5-yr IBM forecast [Annex clients click here]

The (T)ides of March Sink Markets Again - Analysis of global economic & investment trends

IGS: Growth Slows, Profit Surges - Analysis of IGS 2006 business results [Annex clients click here]  

HP: Toward New Highs? (Excerpts from analysis of HP's 1Q07 business results) [Annex clients click here]

Capgemini Caps Great Year, Saves Best for Last (Analysis of Capgemini's fourth quarter business results)

EDS: On Sunny Side of Street  (Analysis of EDS' fourth quarter business results)

CSC: Where Less Seems More (Analysis of CSC's third quarter fiscal 2007 business results)

Fujitsu: Sales Up, Profit Down (Analysis of Fujitsu's third quarter fiscal 2007 business results)

IBM Shatters Records (Analysis of IBM's fourth quarter business results)

IBM Stock Passes Century Mark (Analysis of Big Blue's Stock Performance)

Happy Days Are Here Again (Analysis of Top 20 IT leaders' latest stock market and business performances)

"Excellenture" Excels Again (Analysis of Accenture's first quarter fiscal 2007 business results) [Annex clients click here]

Hedging the Bets (Analysis of latest institutional shareholdings of leading IT companies: IBM, HP, Accenture, EDS, CSC, BearingPoint, ACS, Perot ) [Annex clients click here]

Globalization Accelerates (Analysis of United Nation's annual survey of global investments)  

IBM: A $125-Stock? (An update to "From Small Acorns Mighty Oaks Grow")

Capgemini: Longest Sustained Stock Price Rise (An update to "By Leaps and Bounds")

HP: New King of the Hill (Analysis of HP's fourth quarter business results)

IBM: From Little Acorns Mighty Oaks Grow (Analysis of IBM's "State of the Union")

Capgemini: By Leaps and Bounds (Analysis of Capgemini's preliminary third quarter business results) 

Fujitsu: Good Performance Gets Better, More Global (Analysis of Fujitsu's first half FY2007 business results)

IBM: A Slam Dunk Quarter (Analysis of IBM third quarter business results)

Accenture's Emphatic Year-end Accents (Analysis of Accenture's fourth quarter results) [Annex clients click here]

IBM: Services in a Box (Analysis of IBM Global Services' Ground-shifting Announcements)

Strong Comeback by IT Stocks in Third Quarter (Analysis of top 20 IT companies' market and business trends)

Stock Buybacks: A Fading Fad (Dell, erstwhile "King of Fluff," suspends its stock buybacks)

Capgemini: Growth Continues (Revenues, net profit up in double digits, margins also improve)

HP Firing on All Cylinders (Stock sets new multi-year record following excellent third fiscal quarter results) [Annex clients click here]

Power of Manpower (While others move to India, Russia... AMD invests in New York, hailing "phenomenal" quality of its labor force)

Ebb Tide Lowers Most Boats (Analysis of EDS' and CSC's latest quarterly results)

IBM Stock Grossly Undervalued? (Analysis of stock market valuations of IBM and its major competitors) [adds latest Fujitsu, Capgemini results]

IBM vs. HP: A Tale of Two Blues (Both companies are doing well in business, but only HP is favored by Wall Street; Big Blue trying to change that now with its new "India Opus") [Annex clients click here]

Go East, Young Man! (A speech delivered in St. Petersburg, Russia, May 25, 2006; click here for slides)

IBM 5-Yr Forecast: Steady As She Goes (Emphasis on quality continued) [Annex clients click here]

Octathlon 2006: Accenture Again Wins "Gold!" (HP gets "Silver," IBM "bronze") [Annex clients click here]