CSC Grows With Acquisitions - Analyst Blog

Virginia-based Computer Sciences Corp. (CSC">CSC) announced that it has taken over CenTauri Solutions LLC. Financial terms of the deal were not divulged.

Alexandria, Virginia-based CenTauri supplies a variety of information technology, engineering, systems integration, and intelligence, surveillance and reconnaissance (“ISR”) solutions to customers within the national security and intelligence communities.

The company achieved a three-year growth rate of 810.0%, which enlisted it under the Inc. 500, a compendium of the most entrepreneurial and fastest growing companies in the U.S. The company has tie-ups with various government agencies such as the Defense Intelligence Agency (DIA) and the Defense Information Systems Agency.

Computer Sciences is a very well-known government contractor, with a steady flow of business from different government bodies. The ISR segment is of strategic importance, given the government's increased spending in the area over the past few years. Additionally, with increased terrorist activity in recent times, spending levels should continue.

What makes the acquisition particularly important is it gives CSC a toe hold in the attractive segment. CSC will now be able to secure contracts under the indefinite-delivery/indefinite-quantity agreement between CenTauri Solutions and the DIA. Moreover, Computer Sciences will be able to act as a prime contractor under a $6.6 billion project granted to CenTauri.

CenTauri Solutions' offerings and intellectual properties will help Computer Sciences to enhance the IT service skills crucial for DIA contracts. Moreover, Computer Sciences will be able to strengthen its Intelligence business with the help of the newly added capabilities.

We think the successful integration of recent acquisitions will prove to be a revenue growth driver. Last week, Computer Sciences inked a deal to acquire privately held information technology outsourcing company, Image Solutions Inc. The acquisition will enable Computer Sciences to advance in the health care space.

Overall, we expect the synergies to attract new business from the different industry verticals. However, Computer Sciences' unimpressive second quarter 2011 results keep us on the sidelines. The quarter's top line missed the Zacks Consensus Estimate, although the bottom line was a penny ahead.

Despite the disappointing quarter, we remain optimistic about the company's earnings outlook for fiscal 2011, based on its strong new business bookings, enhanced product portfolio, growing customer base and macroeconomic recovery.

However, contract delays are expected to cap revenue growth in FY11. Moreover, intense competition in the IT and cloud computing space from players such as Accenture plc (ACN">ACN) and Hewlett-Packard Company (HPQ">HPQ) is also a reason for concern.

Currently, Computer Sciences has a short-term Hold recommendation, as indicated by the Zacks #3 Rank.