Unisys Downgraded to Neutral - Analyst Blog

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We recently downgraded our recommendation on Unisys Corporation ( UIS ) to Neutral from Outperform. 

Over the last few years, Unisys has been restructuring its business to improve profitability. This restructuring strategy includes slashing jobs to reduce costs, selling non-core businesses and revamping its sales strategy.

Additionally, Unisys aims to grow its IT sourcing and systems integration revenue in order to adjust the loss of the Transportation Security Administration (TSA) business along with maintaining stable revenue in its Technology business, particularly within the flagship ClearPath business. The company has identified and narrowed its focus around its core areas of strength - namely Security, Data Center Transformation and Outsourcing, which includes its Technology business, End User Outsourcing and Application Modernization.

Meanwhile, Unisys is consistently taking steps to reduce its debt. In 2011, Unisys reduced its debt by 56% or $464 million year over year to $360 million.

However, the top-line continues to deteriorate for Unisys. Overall U.S. federal revenue declined 23% in 2011 due to the economic slowdown and ending of the company's contract with the U.S. SA in November 2010. The company's contract with TSA had generated revenues of approximately $117 million and $150 million in 2010 and 2009, respectively.

Unisys also has significant pension obligations. The company has unfunded obligations under its U.S. and non-U.S. defined benefit pension plans. The company ended 2011 in an underfunded position in its U.S. plans of $1.6 billion, an increase of $630 million above the 2010 level.

Moreover, earnings estimates have declined significantly of late primarily due to the economic slowdown which has curtained IT spending.  Consequently, we have downgraded our recommendation to NEUTRAL from OUTPERFORM.

Our recommendation is supported by Zacks #3 Rank, which translates into a short-term rating of Hold. 


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

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