Citigroup Cuts Affiliated Computer Services to Hold

Analyst Ashwin Shirvaikar believes the company is facing revenue mix shifts that will hurt its long-term earnings power

Citigroup downgraded Affiliated Computer Services (ACS) to buy, after the company posted quarterly results.

The company said it has 79 cents earnings per share (EPS) compared to 88 cents durin the third quarter.

Analyst Ashwin Shirvaikar says it missed his 81 cents estimate by only a modest amount. Nevertheless, he believes the company is facing multiple revenue mix shifts that will fundamentally hurt its long-term earnings power. He also says the company disclosed the existence of two problem contracts that could depress its EPS for the next 4 to 6 quarters. Finally, he says one reason he'd been staying with ACS was in anticipation of a major share buyback, but the company didn't deliver. He cut his fiscal year 2006 (ending June) EPS estimate to $3.10 from $3.39, his fiscal year 2007 estimate to $3.39 from $4.25, and his fiscal year 2008 to $4.22 from $4.62. He also raised his $76 stock price target to $61.

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