Morningstar | Rumors of Turmoil at DXC Sends Shares Sliding; No Impact Expected on EPS; Maintaining FVE
On Wednesday, Oct. 24, rumors swirled that DXC had terminated its head of Americas, Karan Puri. The axing was apparently fueled by a double-digit deficit against forecast revenue in the region. Upon the rumors breaking, DXC’s shares fell precipitously and finished the day down 16%. With such a strong reaction, we believe investors are anxious over the stability of top management at DXC and whether or not the firm is likely to meet upcoming financial expectations. In response to the rumors, DXC released an announcement that stated it didn’t comment on rumor or speculation and that it was reiterating its full-year EPS outlook. We believe it’s too early to assess damage, if any, from the departure of Puri and whether it illustrates signs of disorder in the important Americas region. Still, if anything, this news fortifies our competitive assessment of DXC. DXC remains our only no-moat IT services vendor and we believe the firm’s historically patchy returns on invested capital (from CSC and HPE Enterprise Services), along with the unknown future performance of the newly created company, creates a high degree of risk. As a result, we remain dubious over its long-term ability to patch together its many parts into a cohesive, single-minded organization.Nevertheless, despite the news and strong reaction, we maintain our $93 fair value estimate and await any substantiated evidence of turmoil at DXC before making any changes to our investment thesis or fair value estimate. With the company expected to report second-quarter results on Nov. 6 and host its investor day on Nov. 8, we’ll get a far better long-term picture of the firm’s position over the coming weeks.
DXC Technology is an end-to-end IT services company. The company provides a range of information technology services and solutions primarily in North America, Europe, Asia, and Australia. The company operates through two segments: Global Business Services, which provides technology solutions that help the company's clients address main business challenges and improve digital transformations tailored to each client's industry and objectives; and Global Infrastructure Services, which provides a portfolio of offerings that deliver predictable outcomes and measurable results, while reducing business risk and operational costs for clients.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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