Why DXC Technology Is Up More Than 12% Today
What happened
Shares of information technology services outfit DXC Technology Company (NYSE: DXC) are 12.7% higher as of 11:33 a.m. ET on Thursday, despite its fourth-quarter earnings miss and a subsequently lowered price target.
So what
For the three-month stretch ending in March, DXC Technology turned $4 billion worth of revenue into earnings of $0.84 per share, down 2.8% (organically) and up 13.5%, respectively, and shy of the sales of $4.1 billion and profits of $0.99 per share analysts were collectively calling for. Guidance for the current quarter and current year also came up short of analyst estimates, prompting Deutsche Bank to lower its price target from $53 per share to $48.
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Most research houses maintained their views of DXC following the lackluster quarter, however, and their consensus target of $38.50 is still well above the stock's current value of just under $33 per share.
Credit CEO Mike Salvino for the bullish move, at least partially. The company's top executive successfully convinced investors that DXC's transformation -- which includes a plan to shrink its total revenue while at the same time de-risking its balance sheet -- is still on track and working. The term "better place" was used nine times during Wednesday afternoon's conference call, in reference to the company's self-imposed overhaul.
That said, it's also arguable DXC Technology Company shares were destined to climb today with or without management's verbal assistance. The stock had fallen 34% from August's high as of Wednesday, leaving them priced at only around seven times this year's projected earnings. Investors only needed a nudge, which could have just as easily been supplied by the market's broad bullishness today.
Now what
Big moves like this are usually tough acts to follow, so to speak. And this one may be no different.
In light of the sizable pullback over the course of the past few months and the stock's low valuation, though, investors seem amenable to the idea of a little more revenue contraction in the name of building a leaner, more potent company. More marketwide weakness will likely work against it, but on balance, today's gains should mark the end of the prolonged pullback and possibly signal the beginning of sustained gains.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
