Computer Sciences: The Biggest IT Company You've Never Heard Of 11 comments
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Do you know the name Computer Sciences Corporation (NYSE:CSC)?
If not, don’t be surprised, you’re not alone. CSC is the biggest – and best – information technology (IT) company you’ve never heard of. It’s certainly got size on its side: the company took in more than $17 billion in revenues in 2008, it’s a constituent of the S&P 500, and it employs almost 100,000 people.
CSC provides IT services, including personnel staffing, consulting, and IT and business process outsourcing to business and government clients. Where the company really shines is in the application of complex IT jobs that most companies can’t (or don’t want to) fulfill in-house.
And clients who choose CSC for their IT work tend to stick with their decision: more than 80% of the company’s revenues come from existing clients. A big reason for that is that the complexity of CSC’s IT installations make it hugely beneficial to rehire CSC for future work. That’s a huge competitive advantage.
One of the reasons that CSC keeps such a low profile among consumers is the fact that it doesn’t cater to them directly: CSC’s bread and butter is made up of Fortune Global 1000 companies and government agencies. In fact, the federal government is one of CSC’s longest-standing clients; the company has been working with Uncle Sam for 40 years.
CSC’s Business Case
Truth be told, CSC doesn’t offer up a sexy product that turns heads. It doesn’t sell iPods and have celebrity endorsements. But for investors that’s perhaps the most alluring part about CSC… clients salivate over CSC’s services because they make money and add value.
When Pioneer needed a way to increase efficiency and lower costs, CSC implemented a solution that enabled the electronics manufacturer share computer systems across its subsidiaries and decrease the inventory held on hand. When the state of Colorado needed a way to integrate the state’s system of traffic management systems, CSC’s team provided a solution that the state’s traffic management center manager claims put their system “light years ahead.”
Even if you’ll never see a Super Bowl ad for CSC, you’d better believe that companies are clamoring about what this company can do.
Fit Financially
From a financial standpoint, CSC is in an attractive position right now despite an economy that’s been anything but kind to IT services firms. CSC has been consistently growing its margins in response to economic conditions. Net margins grew 115% to 4.06% in the last five quarters.
Those increased margins helped to contribute to the $160 million in net income the company booked in the last quarter. While a soft economy has had a noticeable effect on CSC’s top line, earnings have been less affected.
CSC’s balance sheet is equally attractive. The company has been using its earnings to shore up its financial position over the past year. Since then, CSC has grown its cash position 126% while keeping its liabilities in check. That extra liquidity is a welcome addition to CSC’s coffers as long as the recession persists.
CSC also looks good from a value perspective. At present, CSC is trading at a P/E multiple of 5.78, the lowest it’s been in more than five years; that P/E is half of that of the S&P as a whole right now.
The company’s price-to-book ratio is 0.94, which means that you’re paying $0.94 on the dollar for CSC’s tangible assets. For an IT company like CSC, which carries fewer tangible assets on its books than less service-oriented stocks, that’s an incredibly low number.
A final measure of CSC’s value worth looking at is its price-to-free cash flow ratio. With the added emphasis on balance sheet liquidity we’re seeing right now, it’s important to consider any stock’s cash-generating ability. And CSC’s ratio of 6.6 means that the company is able to readily generate cash (for comparison, the S&P averages 19.9, meaning that you’re paying more than 3 times as much for each dollar of free cash).
Is the Economy Cause for Concern?
Like any investment, CSC isn’t without its detractors. For starters the company is exposed to some risk from its international operations. Any company that does business overseas has to worry about the effect of currency translation on its financials, and CSC is no different. This is the same issue that we saw with Molson Coors, another of our portfolio companies with big overseas exposure.
Another concern is the economy as a whole. Analysts expect companies to cut back on IT expenditures as we continue to drift in this recession. Weakening industry numbers have been a concern already for CSC – the company’s revenues decreased steadily in 2008 – but it’s not yet clear how much more CSC could be hurt.
Part of the company’s decline is artificial: CSC booked a huge tax benefit in early 2008 that inflated its income and made this past quarter look paltry by comparison. The part that remains is very real.
Nevertheless, I think that CSC’s prospects for 2009 will be strong. One of the main reasons for that is reputation. As cost-conscious companies try to find ways to cut costs through IT infrastructure, CSC should benefit from being top on their list. Likewise, the company ended 2008 with $13.3 billion in contracts in the pipeline. Many of those dollars should be booked this year.
A Leader in the Market for 2009?
CSC is already a leader in enterprise IT… but the company’s unique prospects and valuation could make its stock a potential leader for the Rhino Stock Report’s portfolio as well. We added CSC to our model portfolio at a price of $34.19 in a Rhino Alert sent out on March 2. Since then, the stock has appreciated a small amount, but still remains within striking distance.
Disclosure: CSC is a long position in the Rhino Stock Report’s Model Portfolio
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Ask about csc people who haven't got a raise for past few years on the name of recession or low business.
True CSC is world class co who has around 100,000 employee and still hiring in India where there is no labor law.
So I think the Author should talk about, what is behind the curtain as well.
Go find a job, stop complaining
On Mar 23 04:12 PM SachinB wrote:
> Fine. Isn't it CSC who fired few 1000 people in UK recently and furlough
> in UK, USA and in India as well?
>
> Ask about csc people who haven't got a raise for past few years on
> the name of recession or low business.
>
> True CSC is world class co who has around 100,000 employee and still
> hiring in India where there is no labor law.
>
> So I think the Author should talk about, what is behind the curtain
> as well.
On Mar 23 03:21 AM Bindyachal Choubey wrote:
> I am glad to be a part of CSC workforce. CSC rocks!!!