DXC Technology (NYSE:DXC): Evaluating Valuation After Major Cloud Modernization Milestone With Iberdrola

DXC Technology (NYSE:DXC) just made headlines by wrapping up a major digital transformation project for Iberdrola, one of Europe’s leading energy providers. After years of work, DXC migrated Iberdrola’s most vital systems, including 180 terabytes of data and more than 30 million lines of code, to Microsoft’s Azure cloud. This win matters for DXC, as it showcases the company’s ability to handle demanding, highly regulated clients and deliver large-scale cloud migration services. For long-term shareholders and prospective buyers alike, it is important to set this event against a challenging backdrop for DXC. The stock has declined over the past year, with momentum remaining weak despite periodic pops, and its shares are down 34% year-on-year. Previous announcements and restructuring efforts have yet to produce sustained gains, so investors will be watching closely to see if this major client success marks a turning point or simply a bright spot in an otherwise rough spell for the business. Given this fresh evidence of DXC’s expertise in cloud modernization, some may be considering whether there is an undervalued opportunity here or if the market has already factored this growth story into the stock’s price.

Most Popular Narrative: 7% Undervalued

According to the most widely followed narrative, DXC Technology’s shares are trading at a notable discount compared to its calculated fair value. This indicates potential upside if assumptions play out as forecasted.

“DXC’s strong bookings momentum, with three consecutive quarters of double-digit growth and a sustained trailing 12-month book-to-bill ratio above 1.0, suggests improving deal flow linked to client demand for digital modernization. This should convert to organic revenue stabilization and growth over the next 12-18 months.”

Curious how analysts say declining headline numbers can still create an attractive value case? This valuation hinges on bullish assumptions for future earnings, deal conversion, and a profit multiple rarely granted to lagging stocks. Want to peek behind the headline price target and see what could send DXC shares surging?

Result: Fair Value of $15.12 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent revenue declines and heightened competition in cloud services could challenge analysts’ confidence and put near-term pressure on DXC’s valuation narrative.

Find out about the key risks to this DXC Technology narrative.

Another View: What Does the SWS DCF Model Say?

While analyst price targets suggest DXC Technology is undervalued, our DCF model reaches the same conclusion. Shares look attractively priced, even as future growth expectations remain under pressure. Could this model's assumptions hold up?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out DXC Technology for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own DXC Technology Narrative

If you see things differently or want to draw your own conclusions, you can quickly craft your own DXC story from the latest numbers in just a few minutes, Do it your way.

A great starting point for your DXC Technology research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

Looking for More Smart Investment Ideas?

Don’t let your next great stock pick slip through the cracks. Use these powerful tools to spot opportunity where others might miss it. Act now and get ahead:

• Tap into tomorrow’s most promising sectors by checking out market newcomers distinguished by robust financials. penny stocks with strong financials.
• Unlock high-yielding potential by scanning for shares offering attractive dividend payouts. Start your analysis with dividend stocks with yields > 3%.
• Uncover under-the-radar bargains with attractive upside by searching stocks trading well below intrinsic value. Let undervalued stocks based on cash flows guide your next move.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com