Computer Sciences Corporation (CSC) — This computer services company provides consulting, system integration and outsourcing services.
Capital IQ estimates revenue will fall 6% in fiscal 2016 (ending in March). The company’s North American public sector has experienced weakness due to sequestration and uncertainty over government agency budgets, including the Department of Defense, which accounts for a considerable amount of revenue.
On Aug. 11, the company reported quarterly earnings for the period ended July 3 of $1.11 per share on revenue of $2.76 billion. While the bottom line was better than expected, sales fell short of estimates.
Following the report, analysts at Capital IQ raised their full-year earnings estimate slightly but lowered their 12-month price target for CSC stock by $6 to $67. They maintained a “hold” rating on shares.
In late February, CSC stock jumped to a new high of $73.29 on a gap breakout. After that high, shares traded in a broad right triangle with support at about $64.30 and resistance at a declining trendline, which is currently at about $67.50.
The recent market breakdown resulted in selling pressure on CSC stock, as well as other computer service companies. Shares fell from the resistance line, broke the 50-day and 200-day moving averages, and in just three sessions, fell through the major support line of the triangle that had held since April.
The decline opened a small gap with a midpoint at $63 before heading to a monthly low at $58.77. A subsequent reflex rally closed the gap, but it appears shares have lost momentum, and a failure to regain the support line at $64 could result in a new low.
CSC stock is a short-sale candidate at $62 or higher with a downside target of $52, which would result in a gain of more than 15%.
There are a few things to keep in mind. First, CSC stock goes ex-dividend on Sept. 2, and short sellers will be subject to paying the dividend of $0.23 per share. Second, short selling is a speculative technique that is only appropriate for those willing to bear certain risks. Please consult with your broker as to the advisability of short selling and for any special requirements involved in borrowing this stock. Finally, enter a stop-loss order at the time of the short sale to protect against the possibility of potentially unlimited losses.
