Monday, 13 June 2011

A business rationale for avoiding CSC shares

CSC European executives had an uncomfortable time last week, as they were berated for the company's poor financial performance. CEO Michael W Laphen has demanded more effort and commitment from managers and employees. As if CSC's problems have been caused by lack of effort from employees and managers with financial targets they do not believe in!

This approach of "berating the staff and assigning targets" has become the standard approach to profitability challenges at CSC. Its continual use has demoralized staff and helped get CSC into the difficulties it is struggling with today. Reinforcing this approach in the current environment will simply create more of the same unsatisfactory outcomes for CSC.

Despite all its difficulties, some market analysts continue saying CSC's stock is undervalued. They cite its book value per share, its cash flow, dividend yield, interest coverage and debt/equity ratio as the bases of their opinions. But Rolfe Winkler, writing in the Wall Street Journal, has looked at CSC's business dynamics as his rationale for recommending that investors avoid CSC shares. He gives CSC's poor market positioning, its failure to invest and potential consequences of its accounting irregularities among his reasons.

Here is a link to his article, which is well worth reading:
http://online.wsj.com/article_email/SB10001424052702304778304576377722954582048-lMyQjAxMTAxMDEwMzExNDMyWj.html


Cassandra agrees with Mr Winkler's opinion that CSC shares are best avoided. CSC has failed to act on changing market conditions in recent years. It has also consistently curtailed market, service offering and technology investments and sacrificed sales opportunities to shore up "this quarter's profit".

I strongly recommend Mr Winkler's article to CSC's Board of Directors. Clear and coherent action on the issues he raises will do more to restore CSC's long-term health than continually beating on employees and managers as if they were the major problem of the company. .

Posted by Littlejohn

1 comment:

Anonymous said...

you can add to this list of problems that the strike and conflict at CSC Denmark is threatening the danish company, reputation in Denmark is poorly damaged and it is likely that some of the customers will find other companies for their IT-infrastructure in the future. This is not due to the union and employees but due to the methods that the CSC management in Denmark is handling the conflict, management by fear , threatening their employees and so on.