Executive Summary:
DXC Technology is a global IT services and consulting company formed in 2017 through the merger of DXC serves a wide range of industries, including finance, healthcare, and public sector organizations. Their services encompass cloud solutions, application services, and IT outsourcing, aiming to help clients modernize their IT infrastructure.
DXC Technology Co. reported a total revenue of $3.23 billion, which was a decrease of 5.1% year-over-year (or 4.2% on an organic basis). The non-GAAP diluted earnings per share (EPS) of $0.92 exceeded the analysts’ forecast of $0.77 by a significant margin. This represents a 7.0% increase in non-GAAP diluted EPS compared to the prior year’s quarter.
Stock Overview:
| Ticker | $DXC | Price | $16.43 | Market Cap | $2.97B |
| 52 Week High | $24.83 | 52 Week Low | $14.79 | Shares outstanding | 181.05M |
Company background:
DXC Technology was formed in April 2017 through the merger of two established IT services giants: the Enterprise Services division of Hewlett Packard Enterprise (HPE) and Computer Sciences Corporation (CSC). The strategic vision for DXC Technology was driven by the leadership of both HPE and CSC at the time of the merger, aiming to create a more comprehensive and competitive IT services provider capable of addressing the evolving needs of businesses in the digital age.
The formation of DXC Technology was largely funded through the existing assets and financial structures of HPE Enterprise Services and CSC. The combined financial strength and operational scale of the two parent companies provided the initial capital and resources for DXC to operate and expand its services globally. The focus was on leveraging the existing client relationships, infrastructure, and workforce of both entities to create a more robust and diversified service offering.
DXC Technology offers a broad portfolio of IT services designed to help businesses modernize their technology infrastructure and drive digital transformation. Their offerings span across several key areas, including cloud services, application services, business process services, security, and IT outsourcing. They provide solutions for various industries, such as financial services, healthcare, manufacturing, and the public sector. Key products and services include cloud migration and management, application development and modernization, data analytics, cybersecurity solutions, and infrastructure management.
DXC Technology operates in a highly competitive IT services market. Some of its key competitors include established global players like IBM, Accenture, Tata Consultancy Services (TCS), Infosys, and Cognizant. These companies also offer a wide range of IT consulting, application development, and outsourcing services to businesses across various sectors. The competition is driven by factors such as pricing, service quality, technological expertise, and the ability to deliver innovative solutions that meet the specific needs of clients undergoing digital transformation. The global headquarters of DXC Technology is located in Ashburn, Virginia, in the United States.
Recent Earnings:
DXC Technology Co. reported a total revenue of $3.23 billion, reflecting a decrease of 5.1% compared to the same period in the previous fiscal year. On an organic basis, which excludes the impact of currency fluctuations and divestitures, the revenue decline was 4.2%. This revenue fell slightly short of the average analyst expectations, which were hovering around $3.26 billion.
The non-GAAP diluted EPS for the quarter came in at $0.92, exceeding the analysts’ consensus estimate of $0.77. This represents a healthy 7.0% increase in non-GAAP diluted EPS compared to the $0.86 reported in the third quarter of fiscal year 2024.
DXC highlighted progress in its ongoing transformation efforts, including the optimization of its service delivery model and the focus on higher-margin, strategic growth areas like cloud and digital solutions. The positive EPS performance suggests improvements in overall operational efficiency and profitability.
The company raised its guidance for both adjusted EBIT margin and non-GAAP diluted EPS, indicating increased confidence in its ability to drive profitability despite the ongoing revenue headwinds.
The Market, Industry, and Competitors:
DXC Technology Co operates within the information technology (IT) services market, providing a broad range of solutions that include analytics, cloud applications, data security, and IT outsourcing. The company is segmented into Global Business Services (GBS) and Global Infrastructure Services (GIS), which cater to various industries such as healthcare, insurance, manufacturing, and public sector enterprises. This diversified service portfolio allows DXC to address the unique needs of its clients while leveraging partnerships to enhance its offerings. As businesses increasingly seek digital transformation and cloud solutions, DXC is well-positioned to capitalize on these trends through its comprehensive service capabilities.
The company’s stock price could reach an average of approximately $39.82, with forecasts ranging from a low of $22.20 to a high of $57.43. This anticipated growth represents a significant increase of about 129% from the current level. As organizations continue to prioritize IT investments to enhance operational efficiency and customer engagement, DXC’s strategic focus on innovation and service delivery positions.
Unique differentiation:
DXC Technology operates in a highly competitive global IT services market, facing off against a diverse range of companies that offer similar services. Its primary competitors can be broadly categorized into several groups. One significant group comprises large, established global IT services and consulting giants such as IBM, Accenture, and Tata Consultancy Services (TCS). These companies possess extensive global footprints, broad service portfolios, and significant financial resources, allowing them to compete for large-scale, complex IT projects across various industries. They often have deep industry expertise and long-standing relationships with major clients.
Another key set of competitors includes other prominent IT services providers like Infosys, Cognizant, and Wipro. These companies, particularly those originating from India, have a strong presence in the global market and offer a wide array of services, often with a focus on cost-effectiveness and scalability. They compete aggressively on price and service delivery capabilities, particularly in areas like application development, maintenance, and business process outsourcing. Furthermore, DXC also competes with specialized cloud service providers and niche technology consulting firms that focus on specific areas like cloud migration, cybersecurity, or data analytics, although these might be considered more as partners or competitors for specific service lines rather than direct, overarching competitors.
The competitive landscape for DXC Technology is dynamic, with ongoing consolidation and the emergence of new players. The ability to differentiate through innovation, industry-specific expertise, and the delivery of high-value solutions is crucial for success in this market. DXC must continually adapt its service offerings and pricing strategies to remain competitive against these established and emerging rivals, while also navigating the evolving technological landscape and the increasing demands of its global client base.
DXC Technology aims to differentiate itself from competitors through a combination of factors, leveraging its history and the scale achieved through the merger of HPE Enterprise Services and CSC. One key differentiator lies in its extensive global footprint and broad service portfolio, allowing it to offer end-to-end IT services across a wide range of industries and client sizes. This scale enables DXC to handle large, complex projects and provide a comprehensive suite of solutions, from legacy system modernization to cloud transformation and business process outsourcing.
Another area of differentiation focuses on industry-specific expertise and deep client relationships. DXC emphasizes its understanding of the unique challenges and opportunities within key sectors like financial services, healthcare, and the public sector. By cultivating strong, long-term relationships with its clients, DXC aims to become a trusted partner, providing tailored solutions and a deep understanding of their business needs. This focus on industry verticalization allows them to offer more relevant and impactful services compared to more generalized IT providers.
DXC is working to differentiate itself through its focus on driving digital transformation and innovation. DXC emphasizes its ability to help clients navigate the complexities of adopting emerging technologies like cloud computing, artificial intelligence, and data analytics. They aim to be a partner in their clients’ digital journeys, helping them modernize their IT infrastructure and leverage technology to achieve business outcomes.
Management & Employees:
Mike Salvino serves as the Chairman and Chief Executive Officer. He has been in this role since 2019 and is responsible for the overall strategic direction and performance of the company.
Manju Vatsa holds the position of Chief Financial Officer. She oversees the company’s financial operations, including financial planning, reporting, and investor relations.
Stephen Hilton is the Chief Strategy and Transformation Officer. He leads the company’s strategic initiatives and transformation efforts.
Suresh Vaswani is the President, Global Business Services. He leads the global business services organization, which focuses on delivering a wide range of IT services to clients.
Financials:
DXC Technology Co reported revenues of approximately $16.5 billion, which decreased to about $13.6 billion in fiscal year 2024. The revenue for the first quarter of fiscal year 2025 was reported at $3.24 billion, marking a 6% decline year-over-year. This downward trend indicates challenges in maintaining growth, particularly in its Global Infrastructure Services segment.
The company reported a net income of around $1.2 billion, but this figure fell to approximately $300 million by fiscal year 2024. For the first quarter of fiscal year 2025, net income was reported at $25 million, reflecting a 40% decrease from the previous year. The diluted earnings per share (EPS) also saw a decline, dropping to $0.14 in Q1 FY25 from $0.17 in Q1 FY24.
The total assets were approximately $9 billion, with total liabilities around $7 billion, resulting in a manageable debt-to-equity ratio that reflects a cautious approach to leveraging. The company has focused on improving cash flow generation, reporting cash flow from operations of $238 million in Q1 FY25, which represents an 87% increase year-over-year.
The company is focused on leveraging artificial intelligence and engineering capabilities to capture new market opportunities. While challenges remain in achieving consistent revenue growth, the emphasis on disciplined execution and improved operational models positions DXC for potential recovery and growth.
Technical Analysis:
The stock is in the stage 4 decline (bearish) on all 3 timeframes and is likely to find support in the $14.7 range or earlier. Not a stock to invest in the short to medium term.
Bull Case:
Strong Financial Health & Free Cash Flow: BMO Capital highlights DXC’s strong financial health, evidenced by a perfect Piotroski Score of 9. They also note the company generates substantial free cash flow with a high yield, making it one of the strongest in its peer group.
Improving Performance & Guidance: DXC’s recent earnings report showed better-than-expected adjusted earnings per share and an increase in full-year guidance for both adjusted EPS and free cash flow. The company also reported a strong book-to-bill ratio, indicating robust future demand.
Focus on Stabilization & Return to Pre-Restructuring Levels: BMO Capital believes DXC is making gradual progress towards stabilizing its revenue and aiming to return to its pre-restructuring free cash flow levels.
Bear Case:
High Risk of Future Uncertainty: The negative growth outlook suggests a high risk of future uncertainty, which could lead to further price declines.
Valuation Concerns: While some sources suggest the stock might be undervalued, its volatility and negative growth prospects raise concerns about whether this undervaluation is sustainable or a sign of underlying issues.
Comparison to Peers: Compared to some peers like Accenture and IBM, DXC Technology has a higher P/E ratio, which could be a concern for some investors. Additionally, its Price/Sales ratio is lower than peers, which could indicate the market is less optimistic about its sales potential.
