Is Computer Sciences Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Computer Sciences (CSC) fit the bill? Let's look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell CSC's story, and we'll be grading the quality of that story in several ways:

• Growth: Are profits, margins, and free cash flow all increasing?
• Valuation: Is share price growing in line with earnings per share?
• Opportunities: Is return on equity increasing while debt to equity declines?
• Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's look at CSC's key statistics:

CSC Total Return Price data by YCharts

Source: YCharts.
*Period begins at end of Q2 2010.

CSC Return on Equity data by YCharts

Source: YCharts.
*Period begins at end of Q2 2010.

How we got here and where we're going
CSC comes through with flying colors, earning six out of nine possible passing grades. The largest concern here is CSC's declining revenue, as fiscal belt-tightening and corporate streamlining can only take a business so far in the profitability department. This is a strong performance, but it could be stronger in a few places. Can CSC keep up its progress in the future? Let's dig a little deeper to find out.

CSC's shares soared after reporting its latest quarterly results, as most analysts were expecting the sequester to crimp government spending. However, government contractors are clearly not created equal -- the U.S. Department of Defense has awarded a number of IT services contracts to CSC, which will provide sustainable revenue for at least the next few quarters. CSC bagged a $41.1 million option contract to deliver IT support services to a Naval technology center, which is expected to run until 2015. In addition, CSC will also provide enterprise business systems integration services to the Marine Corps with the support of the U.S. Navy Technology Services Organization. This $28.9 million deal is expected to wrap up by August 2014.

NASA has also awarded a $62 million contract to manage the NASA Advanced Supercomputing Division at Ames for the next year. CSC subsidiary DynPort Vaccine also gained a $157.3 million contract to formulate a "prophylactic and medical countermeasure to forbid the effects of organophosphorus nerve agents" -- in other words, a nerve-gas defense. More such deals might be forthcoming in light of the recent Syrian chemical-weapons brouhaha.

Fool contributor Rich Smith also notes that the U.S. Department of Defense awarded two separate firm-fixed-price contracts: a $21.2 million contract to provide preventive and corrective maintenance  at 66 military stations globally, and a $7.2 million IDIQ contract to provide technical and engineering support to the Marine Corps. These two contracts could be extended with up to five one-year options, which would increase the contract's value to $74.4 million and $29.9 million, respectively. But perhaps CSC's biggest news this year was the attainment of part of an $11 billion contract to provide "support services" to the U.S. Coast Guard. It's only one of 12 companies on the contract roster, but even an equal one-twelfth slice of that pie is larger than all the other contracts we've examined here. Since there is no sign of a slowdown in government spending, CSC appears poised for continuous growth in the near future.

Putting the pieces together
Today, CSC has many of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.