Hybrid IT Modernization And AI Security Will Empower Transformation

Key Takeaways

• Unisys is benefiting from rising demand for digital transformation, AI, and cybersecurity services, supporting growth in revenue, pipeline diversification, and recurring business.
  
• Shifting to higher-margin cloud and SaaS offerings, the company is expanding margins, stabilizing earnings, and reducing reliance on legacy operations.
  
• Persistent revenue declines, margin pressures, legacy business risks, and heavy debt obligations threaten Unisys's ability to compete, invest, and achieve sustainable long-term growth.

Catalysts

Operates as an information technology solutions company in the United States, the United Kingdom, and internationally.

• The growing demand from businesses and governments to modernize operations and customer interfaces is anticipated to drive a sequential ramp in Unisys's application modernization, hybrid infrastructure, and device subscription services (DSS), as clients undertake large-scale Windows 11 and AI-powered device refreshes-likely supporting top-line revenue growth and improved backlog visibility.
  
• Increasing concerns around cybersecurity are pushing organizations to invest in advanced managed security services; Unisys's recent rollout of post-quantum cryptography and expansion in continuous threat management solutions position the company to capture an outsized share of high-margin security consulting and technologies, supporting future net margin expansion.
  
• Accelerating adoption of AI and automation among Unisys's clients is expected to boost demand for its generative AI-enabled offerings, data abstraction, and logistics optimization platforms, as evidenced by new "Intelligence Accelerator" and Service Experience Accelerator deployments; this should drive incremental revenue and higher-margin, differentiated services growth.
  
• The company's ongoing strategic pivot toward higher-margin, recurring SaaS and cloud-based services-away from legacy mainframe reliance-combined with increasing multi-year contract signings and industry recognition, is set to enhance operating leverage, expand profit margins, and stabilize earnings.
  
• Unisys's focus on capturing digital transformation and infrastructure modernization in sectors like transportation, financial services, and the public sector (through new industry solutions, partnerships, and enhanced brand awareness) is building a more robust, diversified pipeline-supporting long-term booked revenue and limiting exposure to macro fluctuations.

Unisys Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Unisys's revenue will grow by 3.0% annually over the next 3 years.
• Analysts are not forecasting that Unisys will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Unisys's profit margin will increase from -3.8% to the average GB IT industry of 6.3% in 3 years.
• If Unisys's profit margin were to converge on the industry average, you could expect earnings to reach $135.5 million (and earnings per share of $1.78) by about July 2028, up from $-73.4 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 6.2x on those 2028 earnings, up from -4.2x today. This future PE is lower than the current PE for the GB IT industry at 27.6x.
• Analysts expect the number of shares outstanding to grow by 2.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.6%, as per the Simply Wall St company report.

Unisys Future Earnings Per Share Growth

Risks

• Declining year-over-year revenues across all major segments (Digital Workplace Solutions, Cloud Applications & Infrastructure, and Enterprise Computing Solutions), with first quarter 2025 revenue down 11.4% YOY as reported and 8.5% in constant currency, reflects persistent challenges in sustained top-line growth and suggests market share erosion, directly impacting future revenue and earnings.
  
• Reliance on License & Support (L&S) contract renewals and the inherent unpredictability of their timing, volume, and customer duration creates significant volatility in quarterly revenue and margin recognition; as L&S remains a shrinking legacy business subject to clients accelerating transition to cloud-native solutions, long-term revenue stability and margins are at risk.
  
• Margin pressure persists as Ex-L&S solutions continue to show softness from lower discretionary project work, field service declines, and increased investments in hiring and training in advance of revenue-combined with global wage inflation and industry-wide talent shortages-potentially eroding net margins and making profitability improvement challenging.
  
• Exposure to highly competitive and increasingly commoditized IT services, with mentions of larger deals involving substantial hardware (lower margin) components and price-sensitive public sector clients delaying decision-making, suggests Unisys faces headwinds from price wars and customers shifting to hyperscale cloud providers, limiting future margin expansion and revenue growth.
  
• Ongoing long-term pension and debt obligations (net leverage ratio at 3.2x, substantial annual required pension contributions projected for years ahead) strain cash flow available for R&D, innovation, and strategic investments-potentially handicapping Unisys's ability to differentiate its offerings in a rapidly evolving IT industry, thereby impacting earnings and long-term competitive positioning.

Valuation

• The analysts have a consensus price target of $8.0 for Unisys based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.1 billion, earnings will come to $135.5 million, and it would be trading on a PE ratio of 6.2x, assuming you use a discount rate of 11.6%.
• Given the current share price of $4.36, the analyst price target of $8.0 is 45.5% 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.