Multi-year Contracts And AI Deployment Will Secure Future Momentum

Key Takeaways

• Enhanced capabilities in AI, data, and cloud solutions are set to drive future growth, margin expansion, and differentiation in digital transformation markets.
  
• Organizational restructuring and cost controls are improving sales effectiveness, boosting free cash flow, and enabling investment in long-term growth and shareholder returns.
  
• Persistent revenue declines, leadership instability, and lagging digital transformation expose DXC to competitive threats, margin pressures, and ongoing challenges in achieving sustainable growth.

Catalysts

Provides information technology services and solutions in the United States, the United Kingdom, rest of Europe, Australia, and internationally.

• Significant acceleration in large, multi-year contract bookings (book-to-bill ratio >1 for both major segments) suggests improving long-term revenue visibility as enterprises consolidate IT spending, which is likely to provide a tailwind to future revenue growth and customer retention.
  
• Strong focus on developing AI, data, and cloud-enabled service capabilities positions DXC to capitalize on increasing enterprise investments in digital transformation and advanced analytics, supporting future high-quality revenue growth and margin expansion as adoption scales.
  
• Rebuilding and strengthening of operational and sales leadership, alongside restructuring of sales process and incentives, are expected to improve salesforce effectiveness, increase win-rates for strategic opportunities, and accelerate conversion of pipeline bookings to recognized revenues.
  
• Renewed investment in offerings (especially AI frameworks, replicable solutions, and industry-specific services) and enhanced partnership initiatives are set to increase differentiation, drive higher-margin services, and positively impact both net margins and earning power over the medium term.
  
• Ongoing cost optimization measures, improved working capital management, and declining debt levels are bolstering free cash flow and reducing financial leverage, creating flexibility for investment in growth initiatives and shareholder returns, which should support sustainable earnings improvement.

DXC Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DXC Technology's revenue will decrease by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.6% today to 3.4% in 3 years time.
• Analysts expect earnings to reach $407.1 million (and earnings per share of $2.15) by about May 2028, up from $-75.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.6x on those 2028 earnings, up from -40.0x today. This future PE is lower than the current PE for the US IT industry at 33.2x.
• Analysts expect the number of shares outstanding to grow by 1.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

DXC Technology Future Earnings Per Share Growth

Risks

• DXC continues to forecast a 3–5% organic revenue decline for fiscal 2026, marking another year of shrinking top-line—a signal that the company may be struggling to effectively reposition itself in the face of ongoing secular shifts to cloud-native, SaaS, and automation-driven IT, threatening long-term revenue stability.
  
• While large, long-duration bookings have improved, these deals take longer to convert to revenue, and custom application project revenues continue to decline year-over-year, suggesting DXC may not be capturing enough near-term, high-growth digital or cloud business and could be ceding share to nimbler competitors, ultimately impacting both growth and net margins.
  
• Management admits to extensive and disruptive operational rebuilding, frequent turnover in top leadership, and the necessity of new sales and execution frameworks—a pattern of instability that raises continued execution risk and could slow or impede the company’s ability to capitalize on secular opportunities, curbing earnings recovery.
  
• Despite investments in AI and innovation, most GenAI projects remain small-scale pilots, not yet ramping to substantial enterprise-wide revenue streams; this lag in monetizing advanced technologies exposes DXC to competitive threats from firms progressing faster in automation or modernization, jeopardizing future top-line growth and returns.
  
• Profit margins are pressured as increased investment in sales, marketing, and workforce offsets cost reductions, while slow progress in shifting towards high-margin, high-growth digital services risks further margin compression, compounded by continued expense related to restructuring, all creating headwinds against sustainable margin and earnings improvement.

Valuation

• The analysts have a consensus price target of $21.333 for DXC Technology based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $27.0, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.9 billion, earnings will come to $407.1 million, and it would be trading on a PE ratio of 13.6x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of $16.56, the analyst price target of $21.33 is 22.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.