Computer Sciences Corporation plans to announce several computer services contracts in the coming weeks, pending word on other commercial and government deals that analysts value at several billion dollars.
CSC Chief executive officer Van Honeycutt said the world's third-ranked computer services company is on a roll after its 9 December mega-win of a contract to modernize the US tax system. That deal was reportedly worth between US$2 and $3 billion
The El Segundo, California-based company's pipeline brims with a flood of possible contracts: from the state of Connecticut, from AT&T, and from Alcatel of France.
CSC (CSC) also awaits decisions on deals with corporate customers in the financial services, aerospace, and utilities industries. Honeycutt said decisions on those contracts are due in the next 60 to 90 days.
"We're seeing a lot of activity in the financial services industry, around banking and insurance, investment banking, regular banking," Honeycutt said.
The tide of favorable news has alleviated some doubts among Wall Street analysts who follow CSC. The consensus prediction is for CSC to produce consistent, ongoing revenue growth of 18 percent and earnings around 22 percent, three times above the average S&P 500 firm.
Questions about CSC's competitiveness in contract bidding and fears that slackening federal spending could pinch revenues -- a quarter of which comes from federal contracts -- sliced nearly 40 percent off the company's share price earlier in the fall.
CSC, founded in 1959, was the first software company to trade on a major stock exchange -- the American Stock Exchange -- in 1963. It moved to the New York Stock Exchange in 1968. The stock closed at $68.31 in composite trading on Friday, up 37.5 cents and within shouting distance of its high of $74.88.
Corporate mergers, cost-cutting, and the need to develop high-growth electronic commerce businesses -- 85 percent of its work now has some Internet component to it -- have accelerated demand for CSC services worldwide, Honeycutt said.
CSC operates in three areas: management consulting, integration of new computer systems, and outsourcing, in which CSC manages a customer's computer operations. CSC often hires the client's computer staff as consultants to aid with the project.
"What we like to do is pick consulting engagements that turn into integration work that leads into outsourcing," Honeycutt said of the way one deal often multiplies into further contracts for its services.
One such potential deal is a decision on the privatization of the State of Connecticut's computer operations. News of the move could come any day, but state officials and bidders say the choice is unlikely to be announced until after the holidays.
IBM Global Services, the industry giant with $26 billion in revenues, is considered a front-runner on the deal, along with CSC, which has mounted its bid in conjunction with a Connecticut state employees union.
EDS, ranked second in the industry with $15.2 billion in revenues, has also bid on the contract, which has been hung up by political wrangling between the governor and legislature.
The move to turn over an entire state's computer systems is being closely watched as a potential model by other states seeking operating efficiencies in this area, analysts said.
Honeycutt attributed CSC's success in Europe in recent years to consulting and systems integration, not outsourcing. But that should change soon, he said, noting, "We will be confirming some already-known data about a large outsourcing contract or two in Europe before too long.''
Honeycutt was likely referring to CSC's deal with the French telecommunications equipment company Alcatel, which has all but given its final stamp of approval on a five-year computer services outsourcing program worth roughly $360 million.
CSC is also in talks with AT&T on a contract to take over Ma Bell's computer operations, an estimated $300 million to $500 million contract for which AT&T has identified CSC as the sole bidder.
With all the activity, Honeycutt says he's comfortable with the range of Wall Street analysts' earnings estimates, and specifically, the 52 cents to 55 cents per share the company is projected to report in its third quarter ending this month.
The rising tide of mega-contract wins at the company has pushed several brokerage analysts to upgrade the stock, with Merrill Lynch naming CSC the stock-picking firm's best technology sector pick, worldwide, for 1999. Additional contract wins should provide a further boost to the stock, Goldman, Sachs analyst Greg Gould added.
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