Affiliated Computer Services: A Cheap Stock Ready to Make New Highs

I have noticed that the computer-technology services sector has been gaining some interest as a lot of stocks are starting to show up on my scans based on strong price performance. 

One stock in the group that has caught my attention is Affiliated Computer Services (ACS). ACS is a tech service company in Dallas, TX that provides information technology services with a focus on transaction processing and program management services that continues to see consistent and steady growth. The kind of growth needed for a higher stock price. 

The fundamentals are not perfect but they are strong enough to keep the stock growing, with EPS growing 3%, 21%, 13%, 10%, 14%, and 4% the past six quarters. Matching the earnings growth, sales have been even more steady rising 14%, 6%, 6%, 10%, 10%, 8%, 6%, and 7% the past eight quarters. 

Estimates for 2008 and 2009 have risen recently to expectations of 3.51 and 3.95 per share. This is a 10% and 13% growth rate estimate and if they continue to rise that is the future expectations that help stocks rise. 

Not only are the fundamentals growing, but mutual fund ownership is now 28% of the shares outstanding, with fund growth of 188 to 195 to 213 to 218 funds the past four quarters. Management only owns 5% of the stock but ACS has been around for over 8 years and most management are out of stock by now. 

For those that use the p/e ratio as a metric to invest ,it is a midrange 16 which is in the middle of its historical 11-23 p/e ratio. One thing that I find more important is the EPS growth rate, which is a lowly 9% and the ROE which is 14%. They are still high enough to make this an attractive stock in this market. 

The biggest problem, for me, is the 113% debt to shareholder equity. But I can’t worry about that too much when I see a cash flow of $6.91 compared to the most recent EPS in March 2008 of $0.85. Very impressive, without a doubt. 

Investors Business Daily has some decent ratings for the stock with an EPS rating of 65, a RS rating of 84, a group RS rating of 85 (A rating), an SMR rating of C, an Acc/Dis rating of A+, a composite rating of 88, a timeliness rating of B, and a sponsorship rating of C. Overall some very bullish ratings. 

This stock is under huge accumulation and I expect it to start to work immediately or else I will be cutting my loss with a close below the 50 DMA (the white line on the top window pane).

 

 

Disclosure: Long ACS

Comments

[ManAboutDallas]

Some new "deal" surrounding ACS is in the works, already. Did everybody notice the recent 8-K describing the new "parachutes" for all the top management should a "change of control" event take place?

Couldn't be clearer, folks, ACS is in somebody's gunsight. And, of course, the usual Favoured Few know about it, already.

[Brian27]

ACS is a cheap stock based on adjusted FCF analysis. The change in capital structure to increased debt financing from equity has increased shareholder value by improving the tax shield from debt. The continued use of free cash to buy back shares will tax efficiently add value to equity holders.

[tuckfinitee]

All the dithering about the R word vs the I word is irrelevant. We're in stagflation now. I want to be upstream with the pricing power. Only the best of the best are good enough downstream. When I look at the 5 yr chart, the price, the current environment, I think of another of another R word. Roulette. Great analysis none the less.

[ManAboutDallas]

ACS showing remarkable "relative strength" against this latest 3-day market meltdown. Yet another "hint" something is in the wind.