Here's Why You Should Add DXC Technology To Your Portfolio

DXC Technology Company (NYSE:DXC) has been an investor favorite, courtesy of its spin-off initiatives, strategic deals and partnerships.

Investor confidence in the stock is evident from its price momentum. DXC Technology stock has gained 61.6% over the past year, substantially outperforming the 40.1% rally of the industry it belongs to.

Let’s delve deeper and take a look at the key aspects aiding the company’s performance.

The Formation

DXC Technology was formed following the merger of Computer Sciences Corporation (CSC) and Enterprise Services Division of Hewlett Packard Enterprise (NYSE:HPE) , which was completed on Apr1, 2017. The combined entity has become the world’s second-largest end-to-end IT services providing company after Accenture plc (NYSE:ACN).

The merger has combined Computer Sciences’ strength in insurance, healthcare, and financial services with HPE’s expertise in industries like transportation, pharma, technology, media and telecom and expanded the avenues of growth for the combined company.

Focused Segments

DXC Technology focuses on the cyber business, cloud computing market and Big Data.

Organizations are transitioning to cloud at an accelerated pace. According to Gartner’s latest report, at 2016-end total market size of SaaS was approximately $144 billion. However, during the year, total cloud shift to SaaS was just $36 billion. This means that the segment is still underpenetrated. Therefore, DXC Technology is expected to benefit from this untapped opportunity.

Acquisitions

Following the footsteps of Computer Sciences, DXC Technology is making strategic acquisitions to enhance portfolio, which is likely to drive growth in the long run. Since its formation, the company has announced two acquisitions that of Tribridge and Logicalis SMC.

The integration of Logicalis SMC business will fortify DXC Technology’s position as a leading global software integrator for ServiceNow (NYSE:NOW) . Tribridge is one of the largest independent integrators of Microsoft’s Dynamics 365, which explains why this acquisition is crucial for DXC Technology.

Partnerships

Apart from buyouts, the company expanded ties with VMware at VMworld 2017. The two entities are coming together to debut the latest DXC Managed Cloud Services supported by VMware's next generation hybrid cloud platform. This contract will enable DXC Technology’s clients to run VMware software (vSphere, Virtual SAN and NSX) on Amazon.com’s (NASDAQ:AMZN) Amazon Web Services (AWS) to deliver enhanced performance for networking customers.

Spin-Off

The company recently announced the spin-off of its U.S. Public Sector (USPS) business, and subsequent merger of the same with Vencore Holdings and KeyPoint Government Solutions.

Upon completion of the deal, shareholders of DXC Technology will receive 86% of the combined company’s shares and $1.05 billion of cash from USPS. Per the agreement, the deal will be structured as a ‘Reverse Morris Trust’ transaction, making it tax-free for DXC Technology and its shareholders.

To Conclude

Owing to all the positives mentioned above, the company has a long-term earnings growth rate of 10.5% and a VGM Score of A. We believe these aspects also justify the stock’s Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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