Here’s Why DXC Technology (DXC) Stock is an Attractive Pick for Investors

Miller Value Partners recently released its Q2 2020 Investor Letter, a copy of which you can download here. During the second quarter, Deep Value Strategy led the overall marketplace and S&P 1500 Value index, generating returns in excess of 50%. You should check out Miller Value Partners’ top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Miller Value highlighted a few stocks and DXC Technology Co (NYSE:DXC) is one of them. DXC Technology Co (NYSE:DXC) provides B2B IT services. Year-to-date, DXC Technology Co (NYSE:DXC) stock lost 45.5% and on August 13th it had a closing price of $19.64. Here is what Miller Value said:

“Finally, I’d like to highlight a holding that we’ve been recently scaling higher, DXC Technology (DXC), a combination of CSC and the Enterprise Service business of Hewlett Packard Enterprise. We are very familiar with the business, having owned both companies at different points in time over the past 15 years. DXC Technology is a Global IT services company that is focused on helping clients with their mission-critical system and leading digital transformation. While the Technology sector has been a market favorite over the past couple of years, DXC has been far from that. The stock price has been under significant pressure, down more than 80% from its post-merger highs as the company ran into integration challenges. DXC’s new CEO, Mike Salvino, has a strong track record in the industry, previously a very successful senior executive at Accenture. His plan for the company has a lot of similarities to successful action steps taken by Maxar Technologies’ (MAXR) new CEO early in their turnaround: focusing on improving key customer relationships and employee morale, selling non-core assets, significantly reducing cost structure, and looking to reduce capital intensity of the business overtime. DXC’s new CEO is also rolling out new cross-selling initiatives, and his significant multi-year cost reduction program will begin in the back half of this year. Upon completion, it has the potential for more than $700M in savings or greater than $2/EPS. Success in implementing the enhancements should allow the company to return to double-digit EBIT margins and mid-high teens ROE supporting normalized EPS greater than $7/share. It’s worth mentioning that DXC peers, Accenture (ACN) and Cognizant Technology Solutions (CTSH), have low to mid-teens EBIT margins and are currently being valued at price–to-sales of 2 to 3 times, while DXC’s market price is currently at a 70% discount to sales! As the turnaround plan improves operating results and returns the company to growth, we believe the valuation discount will begin to narrow between DXC and their peers. The upside potential for DXC is significant and could be multiples of their current share price over the next couple of years.”

This isn’t the first time Miller Value talked about DXC Technology Co (NYSE:DXC) favorably either. The investment firm has been a long time DXC Technology Co (NYSE:DXC) bull. In June, we shared Miller Value’s bullish DXC Technology Co (NYSE:DXC) thesis in this article.

In Q1 2020, the number of bullish hedge fund positions on DXC Technology Co (NYSE:DXC) stock decreased by about 13% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with DXC’s growth potential. Our calculations showed that DXC Technology Co (NYSE:DXC) isn’t ranked among the 30 most popular stocks among hedge funds.

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Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.