Unisys Pulverizes Wall Street's Q3 Sales Estimates

Business software and IT consulting veteran Unisys (UIS 2.79%) reported third-quarter earnings after the closing bell on Tuesday. The company edged out analysts' earnings estimates and absolutely crushed their revenue projections. Unisys shares closed 16.5% higher on Wednesday.

Let's have a closer look at Unisys' latest business update.

Unisys' third-quarter results by the numbers

Data source: Unisys. GAAP = generally accepted accounting principles.

What's new with Unisys?

• The analyst consensus had called for adjusted earnings near $0.46 per share on revenue of roughly $715 million. Unisys exceeded both of these targets, but a huge revenue surprise was more impressive than the slight earnings upside.
• Service revenues rose 8% year over year, or 10% as measured in constant currencies, landing at $654 million. This growth was broad-based, led by support desk and cloud computing services.
• Technology sales increased by 25% to $104 million. Backing out currency exchange effects would lift the growth rate to 26%. One large contract with the Federal government made a big difference here. Unisys is now modernizing and improving Department of Defense technologies at home and abroad under the auspices of the 4th Estate Global Service Center.
• As usual, Unisys incurred significant costs related to retirement plans and debt refinancing. Backing out $50 million of these charges from the negative bottom-line results in the rosier adjusted earnings figures seen in the preceding table.

Consultants gotta consult. Image source: Getty Images.

Color commentary from the executive suite

On the earnings call, Unisys CEO Peter Altabef explored a plethora of large third-quarter contracts to highlight the diverse range of products and services his company can provide. At the end of that walkthrough, he offered the following wide-angle view of Unisys' current business prospects.

"We feel good about the revenue momentum and margin expansion in the quarter," Altabef said. "We have been listening to our clients and evolving our solutions, and the market is responding positively. We remain focused on improving efficiency, maintaining cost discipline to help further drive improvement in margins over time, especially in light of the impact on cash flow, which is a critical area of focus for us."

Looking ahead

Based on recent results and market trends, Unisys boosted its full-year revenue guidance from approximately 3.5% year-over-year growth to a 5% increase. Landing at the midpoint of the new guidance range would produce something like $2.9 billion of total sales, implying fourth-quarter revenues in the neighborhood of $692 million. That, in turn, would be 9% below the fourth-quarter result from 2018.

I get the feeling that management is low-balling us here, setting a low target that would be easy to beat. At the same time, that year-ago period was a uniquely strong report that included $20 million of sales being pulled forward because of changes in the company's accounting rules.

The upshot: Unisys just might be a buy

It's good to see a solid report sparking a strong market reaction, but it's also important to remember that Unisys isn't out of the woods by a long shot. The stock now trades 55% above 52-week lows but also 48% below yearly highs, and even that was a far cry from the $30 share prices seen five years ago. Yes, all of these longer-term price moves include the impact of Wednesday's 16.5% jump.

That being said, it's been years since the company looked this healthy and the stock is trading at the bargain-bin valuation of 4.2 times forward earnings. Opportunistic investors might want to have a nibble at this stock at today's prices.