May 2, 2007
Last Friday, we saw further consolidation in information technology (IT) consulting, as Computer Sciences (NYSE: CSC ) agreed to pay $1.3 billion for Covansys (Nasdaq: CVNS ) . Investors are now trying to guess the next target, and the list includes Perot Systems (NYSE: PER ) . But for all the recent dealmaking elsewhere, Perot's stock doesn't seem to have budged.
Yesterday, Perot Systems announced that Q1 revenues increased 9% to $590 million. While the company was buoyed by its deployments of medical-records systems, it also faces some headwinds. Perot endured delays in its sales pipeline, and its major contract with UBS (NYSE: UBS ) expired. Year over year, its net income stayed flat at $23 million, or $0.19 per share.
In late January, Perot Systems shelled out $244 million for QSS, a deal that will boost Perot's business with government agencies such as the Departments of Defense and Homeland Security. QSS is expected to contribute $260 million to $280 million in revenues for 2007.
Based on the recent M&A activity among IT consulting companies, Perot Systems' stock does look fairly cheap at 0.8 times revenue. CSC paid about three times revenue for Covansys, and Capgemini did the same in its purchase of Kanbay International.
With the loss of its UBS contract, Perot Systems expects continued weakness in Q2. Its guidance calls for quarterly revenue of $620 million to $635 million, and earnings per share of $0.17 to $0.19. Perot Systems does not see an uptick in growth until the second half of 2007. Without any foreseeable catalysts in the interim, it's probably best for Foolish prospective investors to wait.
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 3,449 out of 27,827 in CAPS.