Cautious on Computer Sciences Corp.

| About: Computer Sciences (CSC)

To counter recent negative developments, Computer Sciences Corporation (NYSE:CSC) is exploring new avenues to grow its business and market presence. The company has recently won a task order from the U.S. Navy for a period of five years, with a total value of $110.0 million.

As per the terms of the agreement, CSC will provide engineering and program management support for the development, designing, building, outfitting and testing of the Zumwalt Class Destroyer.

The company also indicated that in conjunction with the state of North Carolina, it has successfully implemented phase one of the North Carolina Medicaid Incentive Payment System. This increases its exposure in the medical health care sector, and promotes the use of electronic health records, which would in turn improve the quality of medical services to the people of North Carolina.

Although the company is winning these deals at regular intervals, investors may have doubts regarding the cautious spending strategy adopted by the government. We cannot be really optimistic on the company, until we witness better visibility backed by stronger government spending trends. Moreover, the NHS and Nordics issues are also looming large.

As a result of the delayed acceptance of the fourth phase of work with the NHS, the $175 million fee will be pushed into 2011. The late implementation could also have attracted compensatory action from NHS, but we don’t think this is likely to happen. Moreover, the accounting issues in the Nordics region again impacted earnings to a certain extent.

Moreover, we are a tad apprehensive about intense competition in the IT and cloud computing space from both big and small players such as Accenture (NYSE:ACN) and Hewlett-Packard Company (NYSE:HPQ). Contract delays and foreign exchange headwinds could also have a temporary negative impact.

Currently, Computer Sciences has a Zacks #4 Rank implying a short-term Sell recommendation.