Since the stock price reached $28.50 in July, things have been miserable for EDS (NYSE: EDS ) , which has lost about a quarter of its value. The company is pushing hard to cut costs and gain new business, but it's not easy as the information technology (IT) services sector gets increasingly competitive.
Its third-quarter revenue increased 6% to $5.63 billion, and profits rose 75% to $225 million, or $0.42 per share. EDS announced a $550 million contract with Continental Airlines (NYSE: CAL ) and a $630 million deal with Sabre Holdings. Despite the seemingly good results, the company's outlook appears to be weak.
The loss of the Verizon (NYSE: VZ ) contract is a drag. What's more, on the conference calls, EDS's management indicated that customer "runoff" will continue to hurt it. So it's no surprise that EDS changed its 2007 estimate on bookings from $23 billion to a range of $21 billion to $23 billion. The company also expects its revenue growth rate to be a meager 2% for next year.
To try to improve that, EDS is trying to grow its applications consulting business. It has expanded its alliance with SAP (NYSE: SAP ) , allowing it more access to SAP technologies, which should lead to getting more clients. Such moves are critical if EDS is to deal with all the competition. It's not only going head-to-head with U.S. rivals like Accenture (NYSE: ACN ) and IBM; it also faces major Indian players such as Wipro (NYSE: WIT ) and Infosys Technologies (Nasdaq: INFY ) , which have wage-cost advantages.
The tough competitive environment, coupled with a weak outlook and low earnings growth, makes a comeback appear to be far off -- and the stock price is likely to remain in a funk.
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