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Positioning Grows Computer Science Corp.

Posted: Jan 23, 2009 13:57 PM by Gregory S. Davis

Tickers in this Article: SRX, ACN, CSC

Growing a global information technology consulting practice during one of the worst economic slumps in decades is an accomplishment deserving of a spotlight. The $17.3 billion firm Computer Science Corp. (NYSE:CSC) is making it happen with a mixture of domestic contract wins and strategic acquisitions unbound by the constraints of U.S. borders. Let's explore recent events building on CSC's plans for growth.

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Domestic News
A new administration in North Carolina headed by Governor Beverly Purdue has ushered in a change for North Carolina's Medicaid billing system. CSC won the $265 million contract from the North Carolina Department of Health and Human Services to replace the existing Medicaid management information system. An additional upside to the win is CSC's prior work on the initial architectural framework of the Medicaid IT architecture - an ongoing initiative to improve the communication of information between states and the Centers for Medicare & Medicaid Services. A solid performance in North Carolina could lead to future contracts with other states in need of an updated Medicaid billing system.

Foreign Acquisition
Late last year CSC announced the acquisition of Bulgarian information technology firm Object Builders Software (OBS). CSC and OBS have collaborated on projects in the financial services sector for 10 years prior to the announcement. Bulgaria is in Southeastern Europe surrounded by Romania to the north, Turkey and Greece to the south and Serbia and Macedonia to the west. Its location is well suited for ease of access to the rest of Europe, the Middle East and Asia. CSC is intent on continuing to grow its consulting business in the areas of insurance, healthcare and technology throughout the regions mentioned. (For more about acquisitions and investing, see our article Mergers And Acquisitions - Another Tool For Traders.)

Valuation
Value investors will take note of CSC's combination of a low price-to-earnings growth ratio (PEG) of 0.91 and its low price-to-sales ratio (PSR) of 0.30. A stock with a PEG below "1" suggests the company is undervalued based on its estimated earnings potential over the next five years. A low PSR, calculated by dividing the current share price by the trailing 12-months' revenues, suggests how inexpensive a stock can be compared to its competitors.

Competitors
Information technology competitors with equally low valuation ratios include the government technology and consulting firm SRA International (NYSE:SRX) and the global management consulting firm Accenture (NYSE:ACN).

Final Thoughts
CSC's ability to service the healthcare industry, its proximity to the nation's capital and its global reach have all been positives toward allowing the consulting practice to focus on where it wants to grow next rather than focusing on where it needs to make cuts. CSC will announce its third-quarter earnings February 10.

For more ideas on companies that may do well during a period of economic contraction, be sure to read Recession-Proof Your Portfolio.

By Gregory S. Davis

Gregory S. Davis is the owner of G. Davis Capital, a Registered Investment Advisor with the state of North Carolina dedicated to providing independent investment research and education. His core methodology for choosing investments includes going against emotion eliciting headlines while focusing on asset diversification. G. Davis Capital also publishes the ETF education website, ETFReady.com . Gregory is a graduate of the Wharton School of Business and he has received an MBA from Bowie State University.

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