Computer Sciences Shares Plunged: What You Need to Know

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What:Computer Sciences (NYS: CSC) dropped 18% in intraday trading today after issuing disappointing earnings and guidance.

So what: EPS from continuing operations was $1.18 per share, thanks to a massive one-time tax credit. According to Stifel Niclaous, the company missed the $0.69 consensus estimate by $0.27 after adjusting for the full impact of the tax credit. Revenue of $4 billion grew 3% year over year.

Now what: The company said weakness in its managed services sector hurt margins last quarter. Management reiterated revenue and EPS guidance for fiscal 2012, which ends next March, but added an acquisition to the outlook to maintain guidance. What's more, operating margin guidance was lowered from between 8.75% and 9.25% to between 7% and 7.50%, suggesting the core business is deteriorating. The company may look cheap at a P/E ratio of 6.5 times, but there is nothing to suggest EPS will grow. Furthermore, its large exposure to government spending poses a meaningful risk to the outlook.

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At the time this article was published Fool contributor Cindy Johnson does not own shares of any company named above. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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