On Friday, Deutsche Bank (ETR:DBKGn) adjusted its outlook on DXC Technology (NYSE:DXC) shares, reducing the firm's price target from $23.00 to $16.00, while maintaining a Hold rating.
This adjustment comes in the wake of DXC Technology's fourth-quarter 2024 earnings report, which showed a year-over-year organic revenue decline of 4.9% and adjusted earnings per share (EPS) of $0.97.
The EPS was slightly above expectations, buoyed by a smaller-than-anticipated downturn in Global Infrastructure Services (GIS) and the impact of share repurchases.
Despite the modest outperformance in the recent quarter, DXC Technology's forecast for fiscal year 2025 (FY25) disappointed analysts, with projected adjusted operating margins and free cash flow (FCF) falling short of expectations.
The company's FCF guidance is approximately $400 million, which is less than half of the estimated figures previously anticipated by Deutsche Bank.
The lowered FCF forecast includes around $250 million in costs related to a newly announced restructuring initiative, along with increased capital expenditures to transition from capital leases.
DXC Technology did experience positive developments in its insurance software segment, which grew by 4.5% year-over-year.
However, the company is expected to face challenges in its turnaround efforts under new leadership, which Deutsche Bank believes will cap any potential recovery in the stock until there is evidence of sustained progress.
In light of these developments, Deutsche Bank has revised its EPS estimates for DXC Technology downward for fiscal years 2025 and 2026, to $2.77 and $3.38 respectively, and introduced an EPS estimate of $3.82 for fiscal year 2027.
The price target has been adjusted to $16.00, reflecting concerns over the company's fundamental weaknesses and the cautious outlook for the near future.
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