Computer Sciences Corporation (CSC) And Billionaire David Einhorn’s Investor Letter

A number of Computer Sciences’ peers have also been struggling, but not Cognizant Technology Solutions Corp (NASDAQ:CTSH) , another IT consulting firm that is a leader when it comes to offshore activities. Cognizant plans to tap new geographic markets that include Europe, Asia Pacific, Latin America, and the Middle East. The tech company has also been expanding its footprint in China, where it sees the market as being the next big market for outsourced offshore IT infrastructure.

Infosys Ltd ADR (NYSE:INFY) has lagged its top peer Cognizant when it comes to performance. Over the past twelve months Infosys is down around 8%, where Cognizant is up 7%. This is due in large part to Cognizant’s larger exposure to the higher growth consulting markets of financial services and healthcare. Infosys did manage to see double digit growth in its consulting and systems integration segment per last quarter’s earnings announcement.

Syntroleum Corp (NASDAQ:SYNT) is another competitor that has been performing well of late, having beat analysts’ estimates by at least 20% over the last four quarters. However, the string of solid performance might not continue, where the company has lowered full year 2012 EPS guidance three times in the last six months, and fiscal year 2013 EPS is expected to come in flat relative to 2012.

One of the biggest players in the global IT consulting industry is International Business Machines Corp. (NYSE:IBM), which gets around 20% of its revenue from global services and consulting. The tech giant is focused on enterprise markets, which includes a focus on support for analytics and cloud computing. IBM is a leader in the application infrastructure market and should remain so; Garnter estimates that IBM owns 32% of the middleware market, with Oracle at in second at only 17%.

Don’t be fooled. Computer Sciences trades at an elevated P/E after beating expectations handedly over the past two quarters. However, in looking at the stock’s price to sales multiple, Computer Sciences trades well below its peers:

Price to Sales
Computer Sciences 0.47
Cognizant Technology 3.02
Syntel 3.25
IBM 1.93
Infosys 3.90

The stock also appears to be executing its turnaround and restructuring plan nicely. Earnings results earlier this month showed that quarterly revenue was up year over year, and the company boosted 2013 guidance; saying that earnings will come in better than expected thanks to profit margin expansion due to cost cutting improvements. If Computer Sciences manages to reach Einhorn’s predicted $4 per share of earnings, and assuming it trades at a P/E multiple of 17 (which is the average of its peers) the upside is nearly 50% from its current trading price of around $46. To boot the stock pays a 1.7% dividend yield.

The article Computer Sciences And Billionaire David Einhorn’s Investor Letter originally appeared on and is written by Marshall Hargrave.

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