We expect information technology services provider Computer Sciences Inc. to beat expectations when it reports fourth quarter 2013 results on May 15.
Why a Likely Positive Surprise?
Our proven model shows that Computer Sciences is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Earnings Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +3.09%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.
The combination of Computer Sciences’ Zacks Rank #3 and +3.09% ESP makes us very confident in looking for a positive earnings beat on May 15.
What is Driving the Better Than Expected Earnings?
Management expects to drive $500–$600 million cost reduction in 2013 and $1.0–$1.2 billion by 2014. During the last quarter, management asserted that the company has achieved cost optimization well ahead of its target.
Computer Sciences also stated that the divestiture of its Credit Solutions business to Equifax Inc. and certain other non-core businesses has generated funds, which will be used to return shareholder value through a share repurchase program and contribution to pension fund.
Banking on the cost reduction plan, which is on track, Computer Sciences now expects 2013 earnings per share from continuing operations in the range of $2.50–$2.70 (up from previously expected range of $2.30–$2.50).
Computer Sciences has delivered positive surprises in the last three quarters. Given the earnings growth potential, we believe the company is likely to post a surprise in its fourth quarter earnings.
Other Stocks to Consider:
Investors can also consider the below mentioned stocks, which have the potential to beat earnings estimate:
Hasbro Inc. (HAS - Free Report) has an Earnings ESP of +3.03% and a Zacks Rank #2 (Buy).
International Game Technology (IGT - Free Report) has an Earnings ESP of +3.23% and a Zacks Rank #2 (Buy).
Web.com Group has an Earnings ESP of +2.38% and a Zacks Rank #3 (Hold).