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Reasons to Retain DXC Technology (DXC) Stock in Your Portfolio
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DXC Technology (DXC - Free Report) is well-poised to benefit from the strength of its digital offerings and marginal expansions in its cloud infrastructure or information technology outsourcing (“ITO”) services. The company is banking on partnerships to enhance its offerings and focusing on acquisitions to expedite growth. However, factors like high debt load and intensifying competition might adversely impact DXC's overall financial performance.
Let us delve deeper into factors highlighting why investors should hold on to the stock for the time being.
Factors Driving Growth
DXC has been gaining from rising revenues from its Global Business Services (GBS) segment, which is primarily driven by strength in offerings like Analytics & Engineering, and Applications & Cloud. The segment, which reflects high value for DXC customers, accounted for 47% of total revenues in fiscal 2022.
With nearly 6,000 private and public sector clients across more than 70 nations, DXC currently expects to expand its GBS line of business while improving the financial performance of the other segment, Global Infrastructure Services (GIS). The company is focusing on enhancing its organic revenues from the Modern Workplace offering, fixing poor-performing ITO contracts, reducing real estate costs and optimizing data center assets.
Besides, the company’s long-standing partnership with VMware , a global leader in cloud infrastructure and business mobility, is aiding it in expanding its existing networking-based infrastructure with the benefits of VMware’s hybrid cloud services platforms. Additionally, this is helping DXC to strengthen its position in the virtualization server market. We believe strategic partnerships like this may help the company enhance its top line as well.
The COVID-19 mayhem still continues to accelerate the digital transformation market. Per the latest Gartner report, worldwide IT spending is anticipated to be $4.4 trillion in 2022, suggesting an increase of 4% from 2021. Gartner expects worldwide spending on IT services to grow 6.8% year over year to $1.27 trillion this year. This seems positive for DXC’s growth in the long run.
The Zacks Consensus Estimate of $3.96 for DXC’s fiscal 2023 earnings suggests growth of 13.1% from the year-ago period. For fiscal 2024, the company’s earnings are expected to surge 24.9% year over year and attain $4.94 per share. The long-term earnings per share growth rate is estimated to be 20.4%, which is better than the industry’s 17.8%.
Primary Concerns
DXC’s near-term growth prospects are likely to be impacted as several organizations are pushing back their investments in big and expensive technology products amid the pandemic and ongoing geopolitical issues.
The company’s cash and equivalents are significantly lower than its outstanding debt. With a risk-based balance sheet and weakened liquidity, it might be difficult for DXC to make strategic investments for acquisitions and partnerships.
The IT and professional services markets, where DXC primarily operates, are dominated by a large number of companies offering similar services. Significant competition from Accenture and International Business Machines’ Global Services is likely to hamper DXC’s long-term growth prospects. The company generates the majority of its revenues from the GBS segment, which is experiencing adverse impacts from the divestiture of the HHS business.
Shares of DXC have fallen 23.8% compared with Zacks Computers – IT Services industry’s decline of 36% in the year-to-date (YTD) period. Shares of VMW have decreased 27.3% during the same period.
The Zacks Consensus Estimate for Keysight's third-quarter fiscal 2022 earnings has been revised 2 cents northward to $1.78 per share over the past 60 days. For 2022, earnings estimates have moved 5 cents north to $7.16 per share in the past 30 days.
Keysight’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 8%. Shares of KEYS have fallen 11% in the YTD.
The Zacks Consensus Estimate for Baidu's second-quarter 2022 earnings has been revised 31 cents southward to $1.38 per share over the past 60 days. For 2022, earnings estimates have moved 3 cents north to $8.27 per share in the past 60 days.
Baidu's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 52.9%. Shares of BIDU have slumped 17.5% in the YTD.
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Reasons to Retain DXC Technology (DXC) Stock in Your Portfolio
DXC Technology (DXC - Free Report) is well-poised to benefit from the strength of its digital offerings and marginal expansions in its cloud infrastructure or information technology outsourcing (“ITO”) services. The company is banking on partnerships to enhance its offerings and focusing on acquisitions to expedite growth. However, factors like high debt load and intensifying competition might adversely impact DXC's overall financial performance.
Let us delve deeper into factors highlighting why investors should hold on to the stock for the time being.
Factors Driving Growth
DXC has been gaining from rising revenues from its Global Business Services (GBS) segment, which is primarily driven by strength in offerings like Analytics & Engineering, and Applications & Cloud. The segment, which reflects high value for DXC customers, accounted for 47% of total revenues in fiscal 2022.
With nearly 6,000 private and public sector clients across more than 70 nations, DXC currently expects to expand its GBS line of business while improving the financial performance of the other segment, Global Infrastructure Services (GIS). The company is focusing on enhancing its organic revenues from the Modern Workplace offering, fixing poor-performing ITO contracts, reducing real estate costs and optimizing data center assets.
DXC Technology Company. Price and Consensus
DXC Technology Company. price-consensus-chart | DXC Technology Company. Quote
Besides, the company’s long-standing partnership with VMware , a global leader in cloud infrastructure and business mobility, is aiding it in expanding its existing networking-based infrastructure with the benefits of VMware’s hybrid cloud services platforms. Additionally, this is helping DXC to strengthen its position in the virtualization server market. We believe strategic partnerships like this may help the company enhance its top line as well.
The COVID-19 mayhem still continues to accelerate the digital transformation market. Per the latest Gartner report, worldwide IT spending is anticipated to be $4.4 trillion in 2022, suggesting an increase of 4% from 2021. Gartner expects worldwide spending on IT services to grow 6.8% year over year to $1.27 trillion this year. This seems positive for DXC’s growth in the long run.
The Zacks Consensus Estimate of $3.96 for DXC’s fiscal 2023 earnings suggests growth of 13.1% from the year-ago period. For fiscal 2024, the company’s earnings are expected to surge 24.9% year over year and attain $4.94 per share. The long-term earnings per share growth rate is estimated to be 20.4%, which is better than the industry’s 17.8%.
Primary Concerns
DXC’s near-term growth prospects are likely to be impacted as several organizations are pushing back their investments in big and expensive technology products amid the pandemic and ongoing geopolitical issues.
The company’s cash and equivalents are significantly lower than its outstanding debt. With a risk-based balance sheet and weakened liquidity, it might be difficult for DXC to make strategic investments for acquisitions and partnerships.
The IT and professional services markets, where DXC primarily operates, are dominated by a large number of companies offering similar services. Significant competition from Accenture and International Business Machines’ Global Services is likely to hamper DXC’s long-term growth prospects. The company generates the majority of its revenues from the GBS segment, which is experiencing adverse impacts from the divestiture of the HHS business.
Zacks Rank & Stocks to Consider
DXC and VMware currently carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.
Shares of DXC have fallen 23.8% compared with Zacks Computers – IT Services industry’s decline of 36% in the year-to-date (YTD) period. Shares of VMW have decreased 27.3% during the same period.
Some better-ranked stocks from the broader Computer and Technology sector are Keysight Technologies (KEYS - Free Report) and Baidu (BIDU - Free Report) , each sporting a Zacks Rank #1.
The Zacks Consensus Estimate for Keysight's third-quarter fiscal 2022 earnings has been revised 2 cents northward to $1.78 per share over the past 60 days. For 2022, earnings estimates have moved 5 cents north to $7.16 per share in the past 30 days.
Keysight’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 8%. Shares of KEYS have fallen 11% in the YTD.
The Zacks Consensus Estimate for Baidu's second-quarter 2022 earnings has been revised 31 cents southward to $1.38 per share over the past 60 days. For 2022, earnings estimates have moved 3 cents north to $8.27 per share in the past 60 days.
Baidu's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 52.9%. Shares of BIDU have slumped 17.5% in the YTD.