This DXC Technology stock forecast article was written by Viktoriya Voronchuk – Financial Analyst intern I Know First.

Highlights:

• Annual FCF had a 16.18% increase in 2020 compared to 2019
• Since August 2020, the company’s share has risen by 38%
• DCF estimates $37 DXC stock forecast for 2021

Overview

Former HP Asset Rocketing in 2020

DXC Technology is an American IT company created in 2017 from the combination of Computer Sciences Corporation’s assets and the HPE Enterprise Services division of Hewlett Packard Enterprise. The company specializes in the provision of services in information technology, including the provision of IT consulting and outsourcing, maintenance of IT equipment in corporations, and system integration.

Since August 2020, the company’s share has risen by 38%. Figure 1 shows that currently, the short-term moving average crosses above the long-term moving average from November 2020, indicating a buy signal (“Golden cross”).

Annual FCF Increased by 16.18% In 2020

By utilizing SWOT analysis, investors can be one step closer to reaching their investment goals. The figure below provides a picture of the DXC’s SWOT analysis. Let’s consider what strengths and weaknesses the company has.

Well, the company has many strengths to appeal to an investor. DXC Technology Company has strong free cash flows that provide resources in the company’s hand to expand into new projects and reinvest to grow the business. DXC Technology’s annual free cash flow for 2020 was $1.838 billion, a 16.18% increase from 2019.

How effective implementation of employee development programs and what about partners of the company? DXC Technology Company is investing considerable resources in its employees’ training and development, resulting in a highly skilled workforce and motivated to achieve more. More than 1.5 million training hours completed by employees, 1700 young people participated in 14 countries in the DXC Codes challenge, DXC University, a learning platform, offering 120000 learning assets for employees. As a solution provider, DXC Connect partners with technology leaders such as Microsoft, SAP, Oracle, etc., to provide customers with best-practice solutions. DXC Technology, with its dedicated customer relationship management department, achieved a high level of customer satisfaction and good brand equity among the potential customers. Without a doubt, it sounds desirable to invest in this company.

The green economy is one of the primary vehicles for achieving sustainable development. And here the company has success! DXC cut greenhouse gas emissions by more than 20%, with similar reductions planned over the next three years. DXC bucks the trend for increased energy usage in computing, reducing our global energy consumption by 25%. The company helps customers use best practices to reduce their energy consumption. The new environmental policy is an excellent opportunity for DXC Technology to capitalize on new technologies and gain market share in a new product category.

Moreover, it is worth considering the company’s global scale. The company’s global scale, talent, and innovation platforms serve 6,000 private and public-sector customers in 70 countries. The main profit of the company comes from the USA and Europe (about $7 and $5.5 billion in 2020, respectively). The United States is the largest tech market in the world, representing 32% of the total, or approximately $1.7 trillion for 2020. In second place is Europe, which accounts for about 20% of the total. DXC is a Fortune 500 company and is represented in the S&P 500 Index. The company has a wide range of service delivery sectors: banking, capital markets, aerospace, defense, energy, oil, gas, etc. But this leads to the company’s weakness: as a global company, over 63% of fiscal 2020 revenues were earned internationally. As a result, the revenues in currencies are impacted by fluctuations in foreign currency exchange rates.

Finally, it is worth mentioning the online platform economy and DXC’s relationship. Does it have a growth trajectory? The answer is yes. According to globenewswire.com, the global digital experience platforms market is anticipated to register a CAGR of 12.07% over the forecast period 2020 to 2025. Over the past few years, and especially during the 2020 pandemic, the online platform’s investment has increased. This investment opened up a new sales channel for DXC Technology. The DXC Technology has a customer-oriented multi-channel interaction system, digital solutions in healthcare, insurance, travel, banking, etc. In the next few years, the company will be able to take advantage of this direction, get to know its customers better, and meet their needs using big data analytics. 

As for the company’s weaknesses, despite DXC being unprofitable, it has sufficient cash runway for more than three years due to free cash flow being positive and growing by 13.7% per year. 

DCF Estimates $37 DXC Stock Forecast For 2021

The DCF analysis results show that DXC’s stock target price should be around $37. This projected share price makes an $11 more difference from the current share price. The forecast is based on average data from previous years, the direction of the company’s policy, and the specifics of the development of this sector of the economy for the coming years. Discount rate and perpetuity growth rate are taken from the finbox.com source.

The decrease in revenues for fiscal 2020 compared with fiscal 2019 reflects the impact of price-downs, run-off, and termination of individual accounts offset by the increase in revenue in fiscal 2020 due to the Luxoft acquisition contributions. Fiscal 2020 revenues included an unfavorable foreign currency exchange rate impact of 2.2%, primarily driven by the strengthening of the U.S. dollar. Last year the company also increased its estimate of the useful lives for the computer equipment from an average of four to five years to an average of four to seven years. This change resulted in a $225 million decrease in depreciation expenses for the year ended March 31, 2020.

Conclusion

DXC shares are up more than 39% since August of 2020. Currently, the short-term moving average crosses above the long-term moving average from November 2020, indicating a buy signal (“Golden cross”). The SWOT analysis shows that despite DXC being unprofitable currently, it has sufficient cash runway for more than three years due to free cash flow being positive and growing by 13.7% per year. The company has a best-of-breed partners network and provides a wide range of sectors in 70 countries, and business activity is driving the green economy. According to the DCF analysis results, DXC’s stock target price will be around $37. Therefore, I consider it the right choice at these current levels for long-term investments, and I take the buy-side on DXC’s stock. 

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the DXC stock prediction. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success With DXC Stock Forecast

I Know First has been bullish on DXC stock forecast in the past. On October 28, 2020, the I Know First algorithm predicted a bullish forecast for DXC Technology stock price. The forecast on 3 months time horizon provided investors with returns of 63.81%. See the charts below.

I Know First is also observing how DXC Technology has been developing since December 8, 2020. The forecast on an almost three-month time horizon provided investors with returns of 6.61%.

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Please note-for trading decisions use the most recent forecast.