Computer Sciences' Coming Spin-Off Makes It Worth Considering, Says Citi

In a report published Friday, Citi analyst Ashwin Shirvaikar upgraded the rating on

from Neutral to Buy, while raising the price target from $73 to $77, citing the upcoming tax-free spin-off event. Computer Sciences is splitting into two independent, publicly traded entities. The spin-off of the company's US Government Services business is expected to be complete by October 2015. This, along with the $10.50 special dividend, creates "a good economic opportunity to Buy CSC," analyst Ashwin Shirvaikar said, while adding that the upgrade in rating reflected the "event-driven potential" for a total return of about 23 percent. In the report Citi noted, "CSC has undergone a successful multi-year transformation that improved its cost structure and streamlined its businesses – this is the next logical value-creation step in the absence of meaningful top-line growth. But we believe the Street has largely ignored this opportunity." Shirvaikar added, "We considered the special dividend, the related interest costs for the $1.5 billion higher net debt and a conservative view of possible dis-synergies from creating two entities. We like that even the low end of the comp multiple range provides enough upside for our Buy."