CSC Secures U.S. Missile Contract

Technology major Computer Sciences Corporation (CSC - Analyst Report) maintained its recent deal winning spree by securing a new contract worth $80.0 million from the U.S. Missile Defense Agency (MDA). The new contract has a time period of one year and can also be extended for another year. This contract was primarily issued under the MiDAESS group 3 engineering support contract.

As per the terms of the contract, CSC is expected to provide matrix systems engineering support to different program and project offices across 19 different locations within the MDA. The company is expected to enhance the delivery and deployment of new systems through standardized processes and performance monitoring. The work on this project will be conducted across different geographical regions.

Through this deal CSC is expected to ensure that the Missile Defense Agency possesses the ability to proactively plan and integrate next-generation defense technologies. Moreover, the company’s ability to help reduce costs through consolidation and standardization will provide the agency with savings and improvements in order to further support its missions with greater efficiencies in the future.

Prior to this deal, the company also won a five-year deal with global defense and security company, BAE Systems, worth approximately $160.0 million a year. The new deal replaces the company’s existing agreement, which is scheduled to expire in April 2012.

So the company continues to see new businesses at regular intervals, which are ensuring incremental cash flows. However, CSC faces headwinds in its government business and concerns over its ability to consistently improve its operating margin performance.

This apart, we are also concerned about delayed realizations from the NHS contract, coupled with the fear of increasing headwinds in the traditional outsourcing business, and continued slow renewal of government contracts.

We are also disappointed with the company’s modest second quarter 2012 results. Apart from major players like Accenture plc (ACN - Snapshot Report) and Hewlett-Packard Company (HPQ - Analyst Report), the company also faces intense competition from new entrants in the IT and cloud computing space.

The company has a Zacks #5 Rank, implying a short-term Strong Sell rating.

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