Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



EDS Looking for Megadeals

Despite its powerhouse status in the information technology (IT) space, Electronic Data Systems (NYSE: EDS  ) hit a speed bump recently. News of its fiscal Q1 report last Thursday sank the company's stock by 6%, to $27.49, amid fears that corporate IT spending is softening.

EDS posted a 3% increase in revenue to $5.22 billion and snagged $3.4 billion in contract signings. While this compares to $10 billion in contract signings in Q1 of 2006, that period included outsized deals from General Motors (NYSE: GM  ) and the U.S. Navy.

First-quarter profits for EDS surged almost sevenfold, to $164 million or $0.31 per share, but free cash flow was a disappointing negative $8 million, largely because of EDS's lax management of its accounts receivable.

EDS signed seven deals worth more than $100 million in the quarter, but no megadeals of $1 billion or more. EDS isn't losing out to the competition -- there just aren't many deals that big on the market at present, which may signal a general slowdown in IT spending.

From the conference call, it sounds like EDS will gear up its acquisitions -- perhaps another sign of an IT slowdown, as businesses gobble up smaller rivals to eke out additional growth. Look at Computer Sciences Corp. (NYSE: CSC  ) , which recently shelled out $1.3 billion for Covansys (Nasdaq: CVNS  ) .

EDS has undergone an amazing transformation over the past couple years, giving it the resources to carry out major acquisitions. All the same, a slowdown in the IT sector could weigh on the stock in the short run. In this case, it's probably best for Foolish investors to wait and see.

Further informative Foolishness:

Fool contributor Tom Taulli author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 1,695 out of 28,469 in CAPS.

Read/Post Comments (0) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 527427, ~/Articles/ArticleHandler.aspx, 10/27/2016 7:17:58 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
EDS.DL $0.00 Down +0.00 +0.00%
2020 ChinaCap Acqu… CAPS Rating: No stars
CSC $55.40 Down -0.44 -0.79%
Computer Sciences CAPS Rating: **
GM $31.58 Down -0.02 -0.06%
General Motors CAPS Rating: ***