DXC Technology Q2 Earnings: Is DXC Cheap at 4.1x Forward P/E?

in EARNINGS/INVESTING IDEAS by

DXC Technology Company was formerly known as Computer Sciences Corporation and changed its name to DXC Technology Company in April 2017 as a result of its merger with the Enterprise Services business of Hewlett Packard Enterprise Company.

The merger hasn’t entirely gone as planned. The company has continued to report declining revenue over the last several quarters and has not been able to manage costs effectively.

DXCQuarterlyRevenue

DXC Technology Company (NYSE:DXC) is scheduled to report Q2 earnings results on November 11, 2019. The company is expected to report earnings of $1.43/share on revenue of $4.915 billion. The consensus earnings per share (EPS) of $1.43/share is based on a poll of 14 analysts and represents a decline of -29.5% of over the same quarter last year when the company reported earnings of $2.02/share.

The revenue forecast of $4.915 billion based on a poll of 13 analysts implies a year-over-year (YoY) decline of -2.0%. Last year the company reported $5.013 billion in revenue for the quarter.

Expected to report EPS decline of -$0.59/share for Q2, 2019
Metric Expected Prior Year YoY Change
Revenue $4,915.00 $5,013.00 -2.0%
EPS $1.43 $2.02 -29.5%

Earnings Call Trends

Management has been great at managing analyst expectations historically. The company has a perfect record over the last 8 tracked quarters of exceeding earnings guidance.

What are your expectations from DXC Technology for this earnings this quarter? Let us know in the comments!

Analyst Expected vs Reported EPS
Quarter Expected Reported Surprise Result
Q1, 2020 $1.72 $1.74 1.2% Beat
Q4, 2019 $2.09 $2.19 4.8% Beat
Q3, 2019 $2.03 $2.23 9.9% Beat
Q2, 2019 $1.94 $2.02 4.1% Beat
Q1, 2019 $1.74 $1.93 10.9% Beat
Q4, 2018 $2.23 $2.28 2.2% Beat
Q3, 2018 $1.99 $2.15 8.3% Beat
Q2, 2018 $1.53 $1.93 26.1% Beat

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Before” column shows the closing stock price on the day before the earnings report, and the “Price After” column shows the stock price at the end of the trading day after the earnings report.

After the last earnings report for the period ending June 30, 2019, the stock price reacted by falling by -28.0%. Despite meeting analyst expectations last quarter, management provided lower guidance for earnings and revenue for the remainder of the year leading to the decline.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
2019-08-08 $49.89 $35.91 -28.0% Decline
2019-05-23 $54.30 $53.08 -2.2% Decline
2019-02-07 $65.49 $69.21 5.7% Increase
2018-11-06 $71.81 $63.21 -12.0% Decline

Fundamentals And Technical Analysis

DXC Technology is currently trading at $30.08/share, up 1.8% for the day. The company is trading at approximately 40.9% of its 52 week high of $73.63/share. The company’s stock price is down -39.7% since the last earnings report and up 6.0% over the previous week. The company’s 14 Day Relative Price Index (RSI) of 56.75 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.

The current share price implies a price-to-earnings (P/E) multiple of 6.8x and a forward P/E multiple of 4.1x. The company has a dividend yield of around 2.8% and pay quarterly dividends of approximately $0.21/share.

DXC Technology’s current share price also implies a price-to-book (P/B) multiple of 0.7x. The following table summarizes some other key fundamental ratios:

Data as of November 10, 2019
Metric Value
Last Fiscal Period FY2020.Q1
Period End Date June 30, 2019
Stock Price (Current) $30.08
P/E Ratio 6.8x
P/E Ratio (Fwd) 4.1x
PEG Ratio 0.4
Total Debt to Capital (%) 57.6%
Levered Free Cash Flow $1.025 billion
Enterprise Value / EBITDA 4.3x

Company Profile: DXC Technology Company

DXC Technology Company is a mid-cap stock with a market capitalization of $7.880 billion and a total enterprise value of $17.435 billion. The company operates in the Information Technology sector and IT Services industry.

DXC Technology Company provides information technology services and solutions primarily in North America, Europe, Asia, and Australia. It operates in two segments, Global Business Services (GBS) and Global Infrastructure Services (GIS).

The GBS segment offers technology solutions comprising enterprise, cloud application, and consulting services; application services; analytics services; business process services; and industry software and solutions.

The GIS segment provides cloud and platform services; workplace, mobility, and Internet of Things services; and security solutions.

DXC Technology Company is headquartered in Tysons, Virginia.

Expertise: financial modeling, mergers & acquisitions. Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights: - Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores. - Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets. Andy can be reached at andy@finbox.io or at +1 (516) 778-6257.

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