Citi Clients Respond To The Upgrade Of Computer Sciences To Buy

While mentioning the investor feedback received after the upgrade of Computer Sciences Corporation (NYSE: CSC) from Neutral to Buy, Citi’s Ashwin Shirvaikar commented, “We remain quite confident in our investment thesis.”

There was significant investor interest in the rating change, Shirvaikar mentioned. He added that of the many investors who had not looked closely at Computer Sciences recently, some had “a “poor quality” bias against the company,” while many had assumed weak bottom-line results, given the poor top-line figure.

“The second-largest group was of existing owners, and the group of outright negative investors we spoke with was very small,” Shirvaikar wrote.

Negative Feedback

• Topline growth: Computer Sciences should be able to achieve “flattish growth” on the back of currency tailwinds, recently signed large contracts and a slightly greater impact of acquired assets, the analyst said.
• UK exposure: “What we can say is that this is likely less profitable than the corporate average due to the influence of U.K. NHS revenue and the recent Xchanging acquisition,” Shirvaikar wrote.
• Appreciation in shares year to date: The most gains were recorded in a single day and the stock’s move did not seem to reflect “the full extent of the likely upside.”

Positive Feedback

• The estimates being overly conservative: This is likely, the analyst noted.
• Whether this could be a multi-year, multi-stage recovery: Shirvaikar commented that catalysts had been mentioned because “a sense of urgency is appropriate in terms of investing in CSC.”

The analyst maintained a Buy rating on the company, with a price target of $61.

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