Morgan Stanley Upgrades Computer Sciences Corp To Equal Weight After Split Reveal

In a report published Wednesday, Morgan Stanley analysts upgraded

from Underweight to Equal-weight, while raising the price target from $63 to $73, following the announcement of the split of its Commercial and Government divisions by the company. Computer Sciences announced on May 19 that it intended to split the company into two main businesses, where the two entities would be Commercial (including the GBS and GIS businesses) and Government (the NPS business). "In connection with the separation, which will be structured as a tax-free transaction for shareholders, CSC is also paying a special dividend of $10.50 per share and restructuring the debt to better realign the capital structure of the two segments. The deal is targeted to close by October 2015," the Morgan Stanley report said. The analysts believe that fundamentally, the split would not lead to significant incremental expenses for the company, given that the two segments have been independently run to a large extent for some time now. "[W]e believe the announcement of the split will support a higher multiple as investors perceive a greater probability of a transaction occurring once the businesses have been separated," the analysts added. On the other hand, Computer Sciences posted another quarter of weak results for 4Q15, with revenues below the estimates and the consensus. The EPS was marginally better, driven by a lower tax rate and non-GAAP adjustments.