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Computer Sciences Corporation (CSC)
Computer Sciences Corp. to Cut Workforce, May Sell
Tuesday's announced work force restructuring could be the first move to pretty up the company for sale. It said it would let go of 5,000 of its 80,000 employees. The cuts would come in 2007-8 and be mainly in Europe. CEO Van B. Honeycutt explained that the cuts were needed because of excess capacity for computer outsourcing services, especially in Europe. With merger talks in the air, CSC may be a prime near term investment, but its profit margins may be in danger.
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The company has drawn the hungry eyes of private-equity firms, including Texas Pacific Group, Warburg Pincus and Blackstone Group, according to Monday's article in the Wall Street Journal, and CSC has hired Goldman Sachs & Co. as an adviser in case buy-out discussions move forward. However, the company's annual sales of $14bn and book value of $8.4bn leave room for speculation regarding the actual cost of a sale, and the potential sale's effects on shareholder value are yet to be determined. The Wall Street Journal reported that the company was considering going up for sale at a price at or above $10.6 billion, according to sources close to sale talks.
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While these companies were not available to comment, one may be able to see why CSC would make an interesting target for acquisition. The company has solid, long-term contracts with the US government, including contracts with the Department of Defense and the Environmental Protection Agency. However, some of these contracts must be re-competed in the near-to-medium term. That is, if CSC cannot prove to the government that it is the best company for its contracts, these revenue sources may dry up and kill any merger talks.
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On the private end, CSC's profit margins have also been squeezed due to global competition for deals with companies, such as Dupont. Computer Sciences Corporation stock price jumped $2.51, or 4.38 percent, to $59.80 in midmorning trading. Competitors, Electronic Data Systems (EDS: Charts, News, Offers) and Accenture (ACN: Charts, News, Offers) were also up during this trading period.
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Profile |
The Company's principal activity is to provide management and information technology consulting, systems integration and outsourcing. Outsourcing involves operating all or a portion of a customer's technology infrastructure, including systems analysis, applications development, network operations, desktop computing and data center management. Systems integration includes designing, developing, implementing and integrating complete information systems. Consulting and professional services includes advising clients on the strategic acquisition and utilization of I/T and on business strategy, security, modeling, simulation, engineering, operations, change management and business process reengineering. The Company operates in North America, Europe and Asia-Pacific.
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