Mr. Market Miscalculates
Two days ago, Computer Sciences Corporation (CSC), which is one of the largest and most established IT services companies in the world, lowered it's earnings guidance for 2011, causing shares to slip 10%. Despite what panicked former investors believe, this is not a huge deal. The main reason they are lowering their earnings guidance is because of troubles in a project they are doing with the National Health Service division of the British government. This hang-up was already priced into many analysts price targets and fair value estimates, most of which show CSC to be greatly undervalued even still. The fact remains that CSC is trading at 8.3 times earnings, versus a five year average of 13.1 times earnings, and an industry average of a whopping 27.5 times earnings. CSC is currently trading at book value. That means that despite the fact that last year CSC reported diluted EPS (Earnings Per Share) of $5.28, well above the average for both the market, and the company itself, investors don't seem to think that CSC will be able to generate any profits over the next few years. I believe that it is a good bet that if CSC could make money in 2008, it can make money when the economy is on the rise.
In conclusion, CSC's lowered guidance was expected by many analysts, and it is a phenomenal bargain, even when you factor in a lowered earnings guidance.
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Disclosure: I am long CSC.
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