Investment Thesis
We believe that DXC Technology (NYSE:DXC)’s ongoing transformation to a digital services provider from a legacy one isn’t appreciated by the street. We find that the Company’s current valuation doesn’t credit what the Management has achieved in stabilizing revenue via growing the digital segment. We think that this dislocation presents a good risk reward in the name. We think that continued execution in the digital segment will bring with it huge multiple expansion in the stock.
DXC’s Recent History is one of Transitioning to Digital
DXC technology is in the process of restructuring its operations from an infrastructure focused services provider to a digital services company. The Company is currently an interesting mix of shrinking IT services businesses, and a growing digital services businesses. The Company came a long way in stopping the bleeding of legacy IT services via replacing the business with digital.
DXC was harmed in the process. Both revenues and profits were hit during operational restructuring. Growing the digital segment caused lost legacy revenue and hit margins as well with significant investments. Now though, we seem to be at an inflection point with stabilization in revenues with digital revenue offsetting the decline in the traditional business in the most recent quarter.
If DXC can keep up the pace in digital, it can become a growth company. Digital services are a prime demand of enterprises. Many large companies are looking for consultants in their digital transformation and operational efficiency efforts through leveraging technology. The digital services vertical is a secular growth area which can transform DXC from a blacklisted name to a loved one in the eyes of investors.
We believe that DXC can execute on this strategy by building on their existing relations with enterprises’ IT departments.
Management is Focused to Speed Things Up
Management
