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What's Behind Computer Sciences' (CSC) Recent Momentum?

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Computer Sciences Corporation has gained solid momentum recently, with shares gaining over 4.5% in the last three trading days. The recent momentum came after the company, on Mar 27, announced that majority of its shareholders have approved its merger with Hewlett Packard Enterprise Company’s (HPE - Free Report) Enterprise Services business. CSC expects to complete the merger before Apr 3.

Notably, in May 2016, CSC announced its decision to merge the company’s business with HPE’s Enterprise Services business, which will be spun off from the parent company. This deal will bring CSC’s strengths in insurance, healthcare and financial services together with HPE’s Enterprise Services expertise in industries like transportation, pharma, technology, media and telecom.

Post merger, the combined entity will become the world’s second-largest IT services company after Accenture plc (ACN - Free Report) and generate revenues of approximately $26 billion. Per the deal, shareholders of each of the companies will own about 50% of the combined company.

Over the past few years, Computer Sciences has been focused on cloud computing and the Big Data business to cash in on the growing demand. Companies are increasingly relying on cloud-based services to make IT systems more agile and productive, and save costs considerably.

We believe that the merger with HPE’s business will strengthen Computer Sciences’ capabilities, enabling it to become a leading player in the IT services domain.

Apart from the aforementioned announcement, CSC’s inclusion in the S&P 500 list also contributed to the recent momentum. The company will replace Southwestern Energy (SWN) and take its place in the S&P 500 list on Apr 4.

CSC’s stock price history reveals that the company hasn’t disappointed in a long time. In fact, over the past one year, shares of Computer Sciences rallied 107.6%, outperforming the Zacks categorized Computer-Services industry, which gained merely 17.1%.

We are optimistic about the company’s traction in cloud and partnerships with HCL, AT&T, VMware and Microsoft (MSFT - Free Report) , which are expected to drive growth over the long run.

Further, CSC’s strategic acquisitions are likely to enhance its portfolio and drive growth. Some of the most important acquisitions made by Computer Sciences include UCX Limited, Autonomic Resources, Fruition Partners and Fixnetix.

However, the company is likely to face some challenges with regard to the integration of the new businesses and the costs associated with them. Apart from this, increased competition, delay in government’s order renewal process and constricted federal spending are the other concerns.

Currently, Computer Sciences has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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