Stifel Downgrades Computer Sciences Amid M&A Rumors

In a report issued on Tuesday, Stifel downgraded Computer Sciences Corporation (NYSE: CSC) to Hold after an M&A trade publication reported that the company was in discussions to sell its commercial and government units to a strategic and financial buyer.

Analysts David Grossman and Irvin Liu wrote, "Similar reports have surfaced in previous years, under a different leadership team, without the consummation of an actual transaction. The accuracy of these reports is difficult to gauge; however, it would be consistent with the current management team's historical commentary….we believe the stock could easily trade down to the $60 range (15-20%) without a sale."

Given Computer Sciences's large scale and the high barriers to entry in its government unit, there are likely to be multiple strategic buyers, according to the analysts. However, the fundamentals of the commercial segments are more challenged due to deflation in the outsourcing portfolio and transitions within the consulting unit, which makes it more difficult to identify potential acquirers.