One US Stock from Tech Space with Global Footprint- DXC

DXC Technology Company

DXC Details

Significant Scale of Operation Aided by Loyal Customer Base: DXC Technology Company (NASDAQ: DXC) is an Information Technology Company which provides end to end services and digital solutions to the global clients. The company has more than 6000 clients across the private and public sector with a presence across more than 70 countries.

Q2FY20 Operational Highlights for the Period ended 30 September 2019: DXC declared its quarterly reports, wherein the company reported $4,851 million as compared to $5,013 million in Q2FY19 due to a decline in the traditional application maintenance segment and legacy infrastructure services. The company reported a loss of $2,119 million as compared to a profit of $262 million in the previous corresponding quarter due to the inclusion of goodwill impairment of $2,887 million in Q2FY20. Global Business Services (GBS) revenue came in at $2,285 million as compared with $2,111 million in prior corresponding period, driven by contribution from acquisitions, including Luxoft. During Q2FY20, the profit margin from its Global Business Services(GBS) segment came in at 15.7%, compared with 18.9% in the prior year on account of investments to support digital hiring and capabilities. During the quarter, the business derived revenue at $2,566 million from Global Infrastructure Services(GIS) segment, down 11.6% on y-o-y basis and includes an unfavourable foreign currency exchange rate impact of 2.5%. GIS profit margin in the quarter was 9.5%, compared with 16.3% in the prior corresponding period, due to a slowdown in delivery cost take-out actions. 


Q2FY20 Income Statement Highlights (Source: Company Reports)

Balance Sheet and Cash Flow Highlights: The company reported cash and cash equivalent of $2,880 million followed by net receivables of $4,611 million as on Q2FY20. Total assets were recorded at $29,516 million, while total equity stood at $8,870 million as on Q2FY20. The company reported a long-term debt of $7,698 million as compared to $5,470 million in Q2FY19. During the first-six-months, the company reported net cash provided by operating activities at $1,585 million and net cash used in investing activities stood at $2,047 million. Net cash provided by financing activities, during the first six months of FY20 stood at $480 million.

Guidance: The company expects revenue for FY20 at around $19.5 billion to $19.8 billion due to deal delays and losses of $235 million, and $40 million due to delayed acquisition. The company expects $100 million of expenses incurred due to the execution of sales and impact from the dynamics of cloud migration. FY20 EPS is expected at $5.25 to $5.75, reduced from the previous forecast due to lower profitability from lower revenues.

Valuation Methodology: Enterprise Value to Sales Multiple Approach

Enterprise Value to Sales Multiple Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of DXC is quoting at $34.64 with a market capitalization of $8.867 billion. Currently, the stock is quoting at the lower band of its 52-week trading range of $26.02 to $69.45. The business reported an increase in the global talent base and provided opportunities for growth from its existing product offerings. DXC has a loyal, global customer base with which the company manages mission-critical operations. The company provides differentiated solutions with the IP services to the major industries like automotive, insurance, healthcare, travel and transportation, and thus the scope of growth for DXC remains wide.  Considering the current trading levels and business prospects, we have valued the stock using one relative valuation method, i.e., Enterprise Value to Sales Multiple. For this, we have taken the peer group- Accenture PLC (NASDAQ: CAN), Capgemini SE (NASDAQ: CAPP), Unisys Corp (NASDAQ: UIS), etc.,and arrived at a target price of lower double-digit (in percentage terms). Hence, we recommend a ‘BUY’ rating on the stock at the current market price of $34.64, down 1.06% as on 15 January 2020. 

 
DXC Daily Price Chart (Source: Thomson Reuters)

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