Technology stock

Should you add DXC tech stocks to your portfolio in 2022?

DXC technology (DXC) helps multinational organizations run critical systems and operations while modernizing IT, optimizing data structures, and ensuring security and scalability across public, private, and hybrid clouds.

The stock of the Concern based in Mc Lean, Virginia gained 15.9% in price over the past month.

However, the company reported weak financials in the last quarter. Additionally, the company revised its revenue contraction forecast for 2022 from a range of 1% to 2% to a range of 2.2% to 2.3%. This could impact its share price performance in the coming weeks.

Here’s what could shape DXC’s performance in the short term:

Positive development

Last month, DXC announced the launch of a new strategic global business group DXC ServiceNow to deliver robust, cost-effective, market-leading technology services that revolutionize enterprise service operations based on DXC Platform XTM. DXC has named ServiceNow as the preferred workflow partner for DXC Platform X, an intelligent, data-driven automation platform that helps detect, prevent, and resolve issues with robust, self-healing IT assets.

Updated assessments

In non-GAAP forward P/E terms, the stock is currently trading at 10.58x, 51.5% below the industry average of 21.80x. Additionally, its forward price-to-sales multiple of 0.58x is 84.42% below the industry average of 3.72x. Additionally, DXC’s 1.98x futures price/pound is 63.50% lower than the industry average of 5.43x.

Bad finances

DXC’s total revenue decreased 4.6% year-over-year to $4.09 billion for the third quarter ended December 31, 2021. Its operating expenses increased 69.8% from in the prior year quarter to $3.92 billion. And the company’s net income was down 91.1% from its value a year ago at $98 million, while its EPS was down 91.1% year-over-year at $0.38.

Mixed profitability

22.5% DXC over 12 months Gross margin is 54.9% below the industry average of 49.9%. Additionally, its ROC, leveraged FCF margin and CAPEX/Sales multiple are 62.7%, 64.3% and 30.7% lower than their respective industry averages. However, DXC’s $950 million in operating cash flow over the past 12 months is 807.1% higher than the industry average of $104.73 million.

POWR ratings reflect uncertainty

DXC has an overall C rating, which equates to a neutral in our own POWR Rankings system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary scoring system also rates each stock against eight different categories. DXC has a C rating for stability and quality. The stock’s beta of 2.35 is in line with the Stability rating. Additionally, the company’s mixed profitability and poor financial results are consistent with the quality rating.

Among 81 D-rated stocks Technology – Services industry, DXC is ranked #30.

Beyond what I said above, one can see DXC ratings for growth, value, momentum and sentiment here.

Conclusion

DXC shares have gained 46.2% in price over the past year based on the company’s strategic investments to drive growth in its various business segments. However, analysts expect its revenue to decline 7.6% year-over-year to $16.39 billion in fiscal 2022. In addition, the company’s mixed profitability company and its weak finances threaten its short-term price performance. We therefore believe that investors should wait before recovering its shares.

How does DXC Technology Company (DXC) compare to its peers?

While DXC has an overall rating of C, one might want to consider its industry peers, Sanmina Corporation (SANM), Celestica Inc. (CLS) and PC Connection Inc. (CNXN) that have an overall rating of A (Strong Buy).


DXC shares were trading at $38.24 per share Thursday morning, down $0.39 (-1.01%). Year-to-date, DXC has gained 18.79%, versus a -4.42% rise in the benchmark S&P 500 over the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college, she majored in finance and is currently pursuing the CFA program and is a Level II candidate. Following…

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