What happened
Shares of DXC Technology (DXC +2.74%) tumbled on Tuesday after J.P. Morgan downgraded the company to underweight. The stock was down as much as 10.2% on the news.
So what
J.P. Morgan's stock analysts downgraded DXC Technology from neutral to underweight on Tuesday morning. This means that the analysts are bearish on the company's prospects, and suggest investors decrease their exposure to the company in their portfolios.
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DXC Technology does IT services and consulting for companies around the world. This sounds like a solid business, but its sales and profits have been deteriorating over the past few years. Trailing-12-month sales have been dropping every quarter since the start of 2020, with gross profits moving in the same direction. It also has $6 billion in debt on its balance sheet. This does not bode well for the company's future prospects.
Now what
DXC Technology Company actually generated $2.5 billion in free cash flow in fiscal year 2020 (encompassing the calendar year 2019), which looks great relative to its $10 billion market cap. However, with deteriorating financials, it is unclear whether the company will ever get back to those profitability levels, making this likely a bad bet for anyone looking to make buy-and-hold decisions for the long term.
