CSC Grabs Navy Deal - Analyst Blog

Virginia-based software major

(

) recently announced that it has received a U.S. Navy work order under the SeaPort Enhanced indefinite-delivery/indefinite-quantity (“IDIQ") contract signed in April 2004.

The $135 million work order for providing support services to Program Executive Officer (PEO) Aircraft Carriers spans over a year and comes with four one-year renewal options.

The services to be provided by CSC will enable the Navy to manage PEO aircraft throughout its lifecycle, taking care of business and financial angles, as well as day-to-day operations support.

After winning and extending several contracts during the earlier half of last month, the company grabbed another $33.0 million contract from the U.S. Navy a few weeks back. As per this contract, CSC will be providing information technology (IT) support to the Naval Surface Warfare Center (NSWC) and the Naval Support Activity. This apart, the company will also provide network and administrative support to the client.

The number of work orders and contract renewals are evidence of CSC’s success at government customers. We view this as particularly encouraging, since government customers typically generate steady flow of revenue and are, therefore, a relatively stable revenue source. The company already has strong relations with several U.S. Government departments and boasts a very large government customer base.

This apart, the company recently disclosed that it is witnessing growing demand for business intelligence (BI) solutions in the insurance, annuity and self-insurance markets. In response to the surge in demand, the tech major has decided to enhance the capability of its Insurance Optics Business Analytics software.

This software, which is already popular among insurance companies, has been selected by 12 life insurance and annuity companies in the past year, in addition to 25 other firms that have already licensed it.

CSC continues to grow through acquisitions that enhance its services portfolio and expand its operations in new markets. It has a steady flow of new business, especially in the government vertical and reported decent fourth quarter results along with a positive fiscal 2010 outlook.

On the other hand, we are a bit concerned about the intense competition in the IT and cloud computing space from both big and small players such as

(

) and

(

). This apart, the company’s high exposure to the U.S. government needs a little diversification, as many other bigger players are trying to grab a share and the increased competition could make the business less profitable.

We maintain a Neutral rating on CSC.