Billionaire Bets Big On Under-the-Radar Tech Stock

You may not have heard of Glenview Capital Management or Larry Robbins, who leads it, but the asset management firm oversees $4.4 billion and has taken a meaningful stake in one little-known firm that appears to be substantially undervalued.

The information technology services and consulting company that has earned Robbins favor goes by the name DXC Technology Company, and while it doesn’t register on many investors’ radars, it has a market capitalization of $4 billion and represents a 5.4% stake in Glenview’s overall portfolio.

So what is it that Robbins sees in this under-the-radar firm to warrant betting hundreds of millions of dollars on it?

Key Points

• Billion dollar fund, Glenview Capital Management, has a large stake in an under-the-radar IT services and consulting firm.
• It’s not obvious, at first glance, from the fundamentals why such a large stake was taken given 20 quarters straight of YoY revenue declines.
• On a closer examination, the price appears to be trading at a material discount to fair value now.

Why Is DXC Down?

DXC Technology Company has clearly fallen out of favor with a bunch of analysts recently, ten of whom downgraded their estimates for the upcoming period.

As sentiment changed, the share price dwindled ever lower, dropping by 24% over the past year alone. It’s not much of a surprise given that year-over-year revenues have fallen for an astonishing 20 quarters straight.

As a testament to the robustness of the overall business model, it’s notable that earnings before interest and taxes have remained in the black for each of those quarters.

And perhaps there is a clue in the disparity between the top line and bottom line performance that explains why Glenview has taken such a large stake in the business.

Is DXC a Good Buy?

As the Oracle of Omaha says the real way to know the true net worth of a business is to forecast its cash flows out in time and discount them to present day. In that gem of a statement lies a clue as to why Larry Robbins firm was willing to bet so large on DXC because, for the past 10 quarters straight, management has reported positive free cash flows.

And that in turn has a material impact on valuation. On a 5-year timeline, a discounted cash flow forecast projects DXC share price could climb to as high as $38 per share, 72% higher than present levels.

The valuation now implies a strong cash flow yield and, another positive is how net income is forecast to grow this year. If that does happen, Larry Robbins and his investment team might indeed be onto a good investment opportunity. It certainly seems that they believe the price has come down too far versus where fair value sits.