NHS Deal for Computer Sciences

Virginia-based tech giant Computer Sciences Corp. (CSC - Analyst Report) ended this month on a high note. Yesterday, the company clinched an information technology (IT) outsourcing deal with Royal Berkshire NHS (National Health Services) Foundation Trust. The 7-year deal has the option to be extended by another 3 years depending on the level of work accomplished. Financial details were kept confidential.

Per the deal terms, Computer Sciences will perform all technological outsourcing jobs for the trust’s latest project. Computer Sciences will be responsible for day-to-day hosting, developing and managing a lot of the trust’s IT and back-office processes. The company will also offer IT help desk, networking, infrastructure, desktop engineering, application development and support, as well as advice regarding clinically driven health informatics.

Company officials are excited about the deal, as they think that it would actually help Computer Sciences to evolve as a key player in the healthcare sector and mitigate the odds of success with the U.K. NHS contract.

In May 2011, the U.K. President reportedly excluded Computer Sciences from future NHS contracts, pending reviews from the health department about the tech firm’s inability to meet the prior project deadline. In September 2011, the Government announced that it would dismantle the entire NHS program, eliminating the ~$250 million of revenue that CSC was expected to earn from NHS in the fourth quarter of fiscal 2012. However, this would be offset by contract termination fees as agreed upon by the parties.

The uncertainty regarding the passing of the MOU is significant, as is evident from the persistent decline in share prices. However, we can only hope that the success with the Royal Berkshire NHS Foundation Trust will add some luster to the company’s fundamentals, which remain impacted by the U.K. issue.

Winning deals is not new for this tech giant. But headwinds in its government business are actually affecting the company’s ability to execute on the deals that it wins at regular intervals. This apart, Computer Sciences’ disappointing second quarter 2012 results and stiff competition from Accenture plc (ACN - Snapshot Report) and Hewlett-Packard Company (HPQ - Analyst Report) in the IT and cloud computing space concern us.

Computer Sciences has a Zacks #5 Rank, implying a short-term Strong Sell rating.

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