Why Computer Sciences Shares Tumbled

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of information technology outsourcing and service provider Computer Sciences dipped as much as 12% after the company reported mixed fourth-quarter results.

So what: Computer Sciences CEO Mike Lawrie commented that his company's transition away from infrastructure sales toward industry software and service sales will be better for the long run, but that this transition could hurt revenue in the interim. Not surprisingly, revenue fell 7% from the previous year -- to $3.7 billion -- which was shy of the $3.8 billion that Wall Street had been expecting. On the bright side, adjusted EPS came in at $1.27 compared to the $1 the Street had estimated, and the company upped its EPS forecast to a range of $3.30-$3.50.


Now what: This is sort of the same story we're seeing with a lot of IT-based companies: planning for the future while suffering in the present. Many, like Computer Sciences, are working to control their expenses during this transition to a recurring revenue model, but it means little if any top-line growth in the meantime. While I feel Computer Sciences' management has the right idea, I'd rather wait patiently on the sidelines until we have more momentum on the revenue side of the business.

Craving more input? Start by adding Computer Sciences to your free and personalized watchlist so you can keep up on the latest news with the company.

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The article Why Computer Sciences Shares Tumbled originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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