Redemption For CSC? (CSC)

Computer Sciences Corporation (NYSE: CSC) is acting as though the companies woes are falling more to the wayside.  The IT consultant signed a non-binding letter of intent with the National Health Service in The United Kingdom.  This deal matters, perhaps even more than the share reaction would suggest.

Monday’s news letter of intent covers a troubled technology outsourcing contract which CSC had written down the $1.49 billion value of the contract during its third quarter.  Under the new terms the company now believes that it is possible that if this is concluded under the interim agreement and amendment that this will allow for the recovery of some of that $1.49 billion which it previously has written off.

If you look at a chart over the last six months you can see that the chart has recovered about all of its losses when shares went down from over $32.00 down to as low as under $24.00.

Shares are up 1.6% at $31.80 and the 52-week trading range is $22.80 to $51.43.  Thomson Reuters has a consensus analyst price target of $28.09, but that may ratchet higher again if the contract ends up recapturing some of the contract value which was written off.

CSC is worth $5 billion in market cap and Thomson Reuters is looking for just over $16 billion in sales this year and next year.  It also trades at under 10-times expected earnings.  CSC screened out as a value stock for literally too long to imagine.  Unfortunately, CSC was actually a value trap.  If the company can correct this and a few other woes, perhaps things are looking up again.

JON C. OGG