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DXC Technology (DXC) Q1 Earnings: Disappointment in Store?

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DXC Technology Company (DXC - Free Report) is set to report first-quarter fiscal 2018 results on Aug 8. Notably, DXC Technology is a result of the merger between Computer Sciences Corporation and Enterprise Services Division of Hewlett Packard Enterprise (HPE - Free Report) , which was closed on Apr 1, 2017.

So, this will be the first quarterly result of the combined business. Let’s see how things are shaping up for this announcement.

Factors to Consider

The merger has opened up new avenues of growth and will help the combined entity to become a leading player in the IT services domain. However, we believe that the benefits of the merger will come over the long run, as DXC Technology’s fiscal first-quarter results are likely to bear the impact of the integration of the acquired businesses.

Moreover, costs associated with the merger and other acquisitions, such as UXC and Xchanging, are likely to mar the company’s bottom-line results in the to-be-reported quarter.

Also, prior to the completion of merger, Computer Sciences Corporation had taken additional debt. This has increased DXC Technology’s total long-term liability, thereby increasing its interest cost burden. The increase in interest cost will have a negative impact on the company’s to-be-reported quarter’s bottom-line results.

Apart from this, increased competition, delay in government’s order renewal process and constricted federal spending may adversely affect its results in the fiscal first quarter.

Earnings Whispers

Our proven model does not conclusively show that DXC Technology will likely beat the Zacks Consensus Estimate in its upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for DXC Technology is -0.80%. This is because the Most Accurate estimate of $1.24 per share is a penny lower than the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: DXC Technology carries a Zacks Rank #4 (Sell). Notably, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Broadcom Limited (AVGO - Free Report) , expected to release earnings on Aug 24, currently has an Earnings ESP of +2.57% and a Zacks Rank #2.You can see the complete list of today’s Zacks #1 Rank stocks here.

Alibaba Group Holding Limited (BABA - Free Report) , scheduled to release earnings on Aug 10, currently has an Earnings ESP of +4.11% and a Zacks Rank #1.

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