This could be a tough year for
Unisys Corp (
As a global information technology (
) company, Unisys conducts IT outsourcing, systems integration and
computer infrastructure maintenance for government agencies,
commercial organizations and financial companies worldwide.
However, with the evolution of computer server and hardware
technologies, demand for Unisys' legacy servers and IT hardware
systems has fallen.
And since there has been weakness in the overall IT market, many of
Unisys' clients have cut their IT outsourcing and purchasing
As a result, Unisys' has seen in a large drop in sales this year.
In response, the company has been forced to make cuts to some
operations, further impacting sales.
Unisys is scheduled to report second-quarter results on Tuesday.
The outlook is unfavorable. Analysts expect both revenue and
earnings to show declines.
Technically, UIS appears to be vulnerable and faces nearby
After hitting a low of $2.80 in March 2009, UIS entered a steep
uptrend, surging to resistance near $16.40 the following month.
As the stock continued its ascent throughout 2009, a major uptrend
In both December 2009 and March 2010, UIS tested resistance near
$40. That failure to penetrate resistance set up a potential double
top, which the stock completed when it fell below $28.68 support on
weak first-quarter results. During its fall, UIS broke the major
uptrend line from its April 2009 high.
While UIS broke an intermediate downtrend line last Friday, it
still faces stiff nearby resistance at current levels. Further
resistance is in the mid-$25 range, the area of its mid-May
recovery highs. A minor uptrend line drawn from the early July
$17.04 low intersects the chart at $21.80.
Despite the recent rally, the stock is well below the falling
30-week moving average, which intersects at $30.07.
Important support dating back to March 2009 is near $17.
The indicators are mixed.
is on a sell signal. Although the MACD histogram appears to have
crested, it remains in negative territory.
In December 2009, the major
relative strength index (
uptrend was broken. It is now in a downtrend and falling. At 45.5,
it is below the key 50 juncture, but not deeply oversold.
Indicative of the stock's weakness, stochastics appears to have
found support in deeply oversold territory. Weak stocks can become
and stay oversold for long periods of time. For the past three
months, %K has leveled off near 19.8, while %D has remained near
12. Stochastics is currently close to giving a buy signal, but both
%K and %D would need to surpass 20 to do so. However (as the dashed
circles show) in the past when a buy signal was given, the stock's
rallies were muted.
In addition to displaying technical vulnerability, Unisys also has
a poor fundamental outlook.
In late April, the company reported disappointing first-quarter
2010 results that were below analysts' expectations. According to
Thomson Reuters, analysts' expected the company to generate revenue
of $1.1 billion, as it did in the first quarter of 2009. However,
first-quarter 2010 revenue fell -9% to $998 million.
Analysts' project second-quarter revenue will fall nearly -10% to
$1.0 billion, compared with $1.1billion in the year-ago quarter.
As demand for UIS' products and services continues to drop, the
outlook for the full 2010 year remains poor. Analysts expect
revenue will fall more than -11% to $4.1 billion, compared with
$4.6 in the full 2009 year.
The earnings forecast is also shaky.
In the first-quarter of 2010, Unisys' earnings fell -60% to $0.27
per share, compared with $0.66 in the first-quarter of 2009. In
translation, especially of the Venezuelan bolivar, contributed to
the large decline.
For the second quarter, analysts expect earnings to fall -47% to
$0.53, compared with $1.00 in the year-ago quarter.
Three months ago, analysts projected full-year earnings of $2.27.
These estimates have since been substantially reduced. Analysts now
expect the company's earnings to fall to $1.47. This is at least a
-69% drop compared with $4.75 in 2009.
In addition, the company is also richly valued, based on its 5-year
price/earnings-to-growth ratio (
(price/earnings divided by earnings growth rate).
is 1.9. In comparison, competitor
has a 5-year PEG of 1.0. And
International Business Machines (
has a PEG of 1.1. The closer the PEG to 1.0, the better the
Action to Take -->
Given that UIS is fundamentally weak and shows technical
vulnerability, I would suggest that investors short the stock if it
breaks the current minor uptrend line.
-- Dr. Melvin Pasternak
Dr. Melvin Pasternak is one of the most experienced market
technicians in the nation and Chief Trading Expert of Double-Digit
Trading. Melvin's background includes a nearly 20-year stint
teaching at TD Waterhouse, and writing a book on
candlestick charting -- 21 Candlesticks Every Trader Should Know --
in 2006. Dr. Pasternak's pedigree includes an MBA from the
University of Calgary and a Ph.D. from the University of Wisconsin.
Disclosure: Neither Melvin Pasternak nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.