Assessing DXC Technology’s Valuation After Share Price Slump and Recent Rebound

• Wondering if DXC Technology at around $15 a share is a value trap or a quiet opportunity? This piece will walk through what the numbers are really saying about the stock.
• Despite being down 23.4% year to date and 29.9% over the last year, the stock has bounced about 10.4% in the past week and 11.8% over the last month, hinting that sentiment might be starting to shift.
• That rebound has come as investors digest ongoing portfolio reshaping, cost cutting efforts and strategic reviews across DXC's business lines, with speculation swirling around potential asset sales and takeover interest. At the same time, the broader IT services space has been repricing as markets reassess how traditional vendors fit into the next wave of digital transformation.
• On our checklist of valuation metrics, DXC Technology scores 5 out of 6, and you can see the full breakdown in our valuation score. Next, we will unpack what different valuation approaches say about that score and, by the end of the article, look at another way to make sense of DXC's true worth.

Find out why DXC Technology's -29.9% return over the last year is lagging behind its peers.

Approach 1: DXC Technology Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company is worth by projecting the cash it can generate in the future and then discounting those cash flows back to today in $ terms. For DXC Technology, the 2 Stage Free Cash Flow to Equity model starts with last twelve months free cash flow of about $1.12 billion, then layers on analyst forecasts and longer term projections.

Analysts expect free cash flow to be around $670.69 million by 2027, and Simply Wall St extrapolates that out further, with projected free cash flow of roughly $546.71 million in 2035. These future cash flows are discounted back to present value, giving an estimated intrinsic value of $29.26 per share.

Compared with the current share price around $15, the DCF suggests DXC is trading at roughly a 48.3% discount to its calculated fair value, which indicates the market may be heavily discounting its turnaround potential.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests DXC Technology is undervalued by 48.3%. Track this in your watchlist or portfolio, or discover 908 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for DXC Technology.

Approach 2: DXC Technology Price vs Earnings

For a company that is generating positive earnings, the price to earnings ratio is a straightforward way to gauge how much investors are willing to pay for each dollar of profit. In general, faster growing, lower risk businesses deserve a higher PE multiple, while slower growing or riskier names typically trade on a lower multiple to reflect that uncertainty.

DXC Technology currently trades on a PE of about 7.1x, which is sharply below both the broader IT industry average of roughly 31.1x and the peer group average of around 19.1x. Simply Wall St also calculates a Fair Ratio of 18.7x for DXC, a proprietary estimate of what its PE should be given its earnings growth profile, profitability, industry positioning, market cap and risk characteristics. This Fair Ratio is more informative than a simple comparison to peers or the industry, because it tailors the "normal" multiple to DXC’s specific fundamentals rather than assuming it should look like an average company.

With the actual PE of 7.1x sitting well below the Fair Ratio of 18.7x, this approach also points to the shares being undervalued.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1446 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your DXC Technology Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple tool on Simply Wall St’s Community page that lets you connect your view of a company’s story with your own forecasts for its future revenue, earnings and margins. You can then translate that into a Fair Value you can compare against today’s price to inform your decision on whether to buy or sell. The platform automatically refreshes those Narratives as new news or earnings arrive. One investor might build a bullish DXC Technology Narrative around major contract wins, AI offerings and buybacks that justifies a fair value closer to the higher analyst target of about $18. Another, more cautious investor could create a bearish Narrative that focuses on ongoing revenue declines, margin pressure and turnaround risks and lands nearer the lower end of analyst expectations around $14. Both views can exist side by side and update dynamically as the facts change.

Do you think there's more to the story for DXC Technology? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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