Well, computer services company Electronic Data Systems
The good news is that the company has had plenty of time to re-work its 2003 earnings numbers (at its auditors' behest) and get everything together in order to file its 10-Q simultaneously with its earnings release. And so it did. So let's head straight over to the filing and see what all the fuss is about.
From a straight GAAP perspective, EDS's third-quarter numbers are an absolute mess -- which, after the multiple delays in filing and publishing its earnings release, should surprise no one. In comparison to Q3 2003, EDS's revenues slumped by 1%, while losses per share increased tenfold to reach $0.30. On the other hand, year to date, EDS isn't looking quite as bad. Revenues actually increased a modest 2% over the first nine months of 2003, and earnings for the period were positive by a full $0.21 per share, vs. last year's $2.79 loss.
What's more, long-term debt is down slightly since the beginning of the year, while the company has added $2.2 billion worth of cash, cash equivalents and marketable securities to its cash pile, amassing a total of $4.5 billion in cash -- enough to pay off its entire long-term debt and pension liabilities at will. With cash generation like that, you might expect EDS to be free-cash-flow positive -- and you'd be right. Over the past nine months EDS has generated $275 million in cash, a nice change from last year, when the first nine months saw a net-cash outflow of more than $100 million.
Put it all together and it seems clear that EDS is not the basket case that so many feel it to be. But it's still not necessarily a "buy." Taking the company's own predictions for fiscal 2004 FCF generation and comparing them to its market cap, balance sheet, and consensus analyst expectations for its long-term growth rate, EDS scores an EV/FCF/growth ratio of 4.2, which is expensive in comparison to competitors such as Accenture
For more on EDS's troubles, read:
- Anticipation: The EDS Way
- EDS Grounded Too?
- EDS Looking for Answers
- EDS Earnings an Epitaph?
- EDS's Downside
Fool contributor Rich Smith owns no interest in any of the companies mentioned in this article.
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