DXC is an IT services provider merged from Computer Sciences Corp and HP’s IT services business back in 2016-2017. They had an excellent run from cost cutting initiatives which backfired in 2019-2020. Since then, new management has entered the picture with a turnaround plan.
As of early 2022, the stock is all about the turnaround and long-term guidance — $5+ in EPS and $1.5bn FCF on a <$30 stock price.
- Debt repayment was the focus in FY21-22
- Buybacks are starting to ramp in FY22-23
Financials & Valuation
The June 30 quarter was fiscal first quarter of 2023 for DXC (1Q23). The big news was a guidance cut for EPS, FCF, and revenue growth. EPS is expected at $3.45-3.75 vs. $3.85-4.15 and FCF is $700m vs. $800m. Importantly, FY24 guidance was maintained — $5-5.25 EPS and $1.5bn FCF.
Buybacks are still ramping up — $266m spent (~$30/share) in 1Q23 and another $500m remaining on repurchase authorization.
At the 5yr average P/E of 8.3x, DXC would be worth $41.50 based on $5 in FY24 EPS (forward 12-month). Given the balance sheet is already at the target leverage ratio, management has all FCF available to deploy into buybacks or other value-creating areas.