Author Topic: DXC - DXC Technology  (Read 4996 times)

valuedontlie

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Re: DXC - DXC Technology
« Reply #10 on: April 07, 2020, 06:35:21 PM »
also, if you're going to treat operating leases as debt you should look at it on a rent-adjusted earnings basis....


valueinvestor

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Re: DXC - DXC Technology
« Reply #11 on: April 07, 2020, 06:47:24 PM »
i'm a shareholder...

new CEO came in after Mike left... outlook for earnings over the next few years is lower (i.e. new CEO resets the bar)...

they talked about converting 80-85% of EPS into FCF and GAAP EPS should be $3.25+ in FY20 and expanding from there... i'd love to see them do a big buyback but given all the uncertainty, getting to debt-free isn't a bad move for most companies...

Ahh you learn something new everyday - but even considering that $100 per share as Jeff mentioned is hard to see without a 20 multiple and it becomes a growth engine again.

My value at the most would be $50-60 dollars, but considering my lack of understanding of the "moats" surrounding the business, I was comfortable being on the sidelines.

What do you think I'm missing here?

concerto

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Re: DXC - DXC Technology
« Reply #12 on: April 07, 2020, 08:48:20 PM »
I don't think this is a $100 stock, or perhaps even a $50 stock, but something in the $25-35 range (5-7x P/E) should be justifiable pretty easily even with a margin of safety in mind and a great return (vs. $13 current price). Looking through some of the articles on The Register through the years (as well as the lawsuit recently filed by Kingstown Capital), it looks like the failures of the company since the CSC/HPES merger can be largely attributed to Lawrie's desire to massively cut costs without regards to the potential impact that rationalization could have on project delivery and top-line. This I think could be interpreted as an incremental positive, as failures in execution due to a specific cause (ridiculous cost-saving initiatives) can be addressed under a new regime. It might not be a great margin expansion story anymore, but hopefully we won't see 5-10% yoy revenue declines moving forward.

I don't think there's any real moat here, except that when DXC is running your IT infrastructure they're probably difficult to replace. That being said, their ITO business managed to decline 15%+ year-over-year this past quarter so maybe even that stickiness isn't real.

With regards to the valuation multiples - I might be missing something, but the debt calcs include capital leases only (not operating leases) so there are no further adjustments needed to EBITDA as far as I can tell. Sorry if my accounting skills are a bit rusty at the moment.
« Last Edit: April 07, 2020, 08:50:02 PM by concerto »

valueinvestor

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Re: DXC - DXC Technology
« Reply #13 on: April 07, 2020, 09:27:07 PM »
I don't think this is a $100 stock, or perhaps even a $50 stock, but something in the $25-35 range (5-7x P/E) should be justifiable pretty easily even with a margin of safety in mind and a great return (vs. $13 current price). Looking through some of the articles on The Register through the years (as well as the lawsuit recently filed by Kingstown Capital), it looks like the failures of the company since the CSC/HPES merger can be largely attributed to Lawrie's desire to massively cut costs without regards to the potential impact that rationalization could have on project delivery and top-line. This I think could be interpreted as an incremental positive, as failures in execution due to a specific cause (ridiculous cost-saving initiatives) can be addressed under a new regime. It might not be a great margin expansion story anymore, but hopefully we won't see 5-10% yoy revenue declines moving forward.

I don't think there's any real moat here, except that when DXC is running your IT infrastructure they're probably difficult to replace. That being said, their ITO business managed to decline 15%+ year-over-year this past quarter so maybe even that stickiness isn't real.

With regards to the valuation multiples - I might be missing something, but the debt calcs include capital leases only (not operating leases) so there are no further adjustments needed to EBITDA as far as I can tell. Sorry if my accounting skills are a bit rusty at the moment.

Makes sense - no worries about it - valuation is more an art than science so as long a range can be made that's fine. I was wondering what Jeff meant by $100 stock - thought I was missing something huge.

However, I agree with your valuation for the most part.