On Monday (NASDAQ:MNDY), BMO (TSX:BMO) Capital Markets adjusted its outlook on shares of DXC Technology (NYSE:NYSE:DXC), a global IT services company, by increasing the price target to $25 from the previous $22 while maintaining a Market Perform rating. The firm's analyst cited a mixed quarterly performance by DXC, noting weak performance in Global Business Services (GBS) but highlighted strength in the company's margins.
The analyst expressed optimism regarding the company's ongoing recovery efforts, mentioning that DXC is in the "early innings of a long turnaround." The commentary from DXC on the expansion of senior leadership and improved discussions with customers, especially large ones, was seen as a positive development.
However, the analyst pointed out the necessity for DXC to enhance its bookings, as the book-to-bill ratio has been under 1.00x for several consecutive quarters.
Despite the increase in the price target to $25, BMO Capital Markets remains cautious, preferring to see more evidence of DXC's growth potential before changing its stance. The analyst concluded that while there are encouraging signs, they will remain on the sidelines until there is clearer evidence of sustained improvement in DXC's performance.
DXC Technology's journey toward revitalization involves a focus on expanding leadership and fostering stronger relationships with key customers. The company's financial health, as reflected in its book-to-bill ratio, remains a critical area for potential growth as it continues to navigate its turnaround strategy.
With the updated price target, BMO Capital Markets acknowledges the progress DXC has made while also emphasizing the need for continued improvement in the company's growth metrics.
In other recent news, DXC Technology reported mixed results in its second-quarter fiscal year 2025 earnings. Despite a 5.6% decline in total revenue to $3.2 billion, the company surpassed expectations with an adjusted EBIT margin of 8.6% and non-GAAP EPS of $0.93.
CEO Raul Fernandez attributed the company's performance to effective cost management and a one-time legal settlement gain, which also led to an increase in full-year guidance for adjusted EBIT margin and non-GAAP EPS. The company's book-to-bill ratio also improved from the previous quarter.
In terms of future expectations, DXC Technology anticipates a year-over-year revenue decline between 5.5% and 4.5%. However, the full-year non-GAAP diluted EPS is expected to be between $3 and $3.25, with an increase in projected free cash flow to approximately $550 million.
The company also highlighted the launch of new GenAI-powered solutions to improve client operational efficiency and the addition of new senior leadership to enhance company performance.
On the downside, the company experienced a decline in the GBS and GIS segment revenues, with the GIS segment facing a more significant decrease. The company also noted a slowdown in custom application development projects, which led to revised growth expectations.
Despite these challenges, DXC Technology remains focused on executing fundamental initiatives over the next 12-24 months to ensure resilience and adaptability in a rapidly evolving tech landscape.
InvestingPro Insights
To complement BMO Capital Markets' analysis of DXC Technology's turnaround efforts, InvestingPro data offers additional insights into the company's financial position and market performance. DXC's market capitalization stands at $3.92 billion, with a price-to-book ratio of 1.21 as of the last twelve months ending Q2 2025, suggesting the stock is trading slightly above its book value.
InvestingPro Tips highlight that DXC has a perfect Piotroski Score of 9, indicating strong financial health and potentially supporting the analyst's optimism about the company's recovery. Additionally, management has been aggressively buying back shares, which could be seen as a vote of confidence in the company's future prospects.
However, the company's high P/E ratio of 170.03 and the fact that it's trading at a high EBIT valuation multiple align with BMO's cautious stance. This valuation suggests investors are pricing in significant future growth, which the company still needs to deliver on.
It's worth noting that DXC's revenue for the last twelve months ending Q2 2025 was $13.26 billion, with a revenue growth rate of -5.53%. This decline in revenue underscores the challenges mentioned in the article regarding the need for improved bookings and growth.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for DXC Technology, providing a deeper understanding of the company's financial health and market position.
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