We recently downgraded our recommendation on
) 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
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.
): Free Stock Analysis Report
To read this article on Zacks.com click here.