EDS sees soft sales, shares plunge

Shares of Electronic Data Systems (NYSE: EDS) plunged 22 percent Friday after the company said second quarter sales will be "softer than expected."

EDS was off 13 1/4 to 44 9/16.

EDS said revenue growth will be in the low single digits, down from guidance of mid single digits.

The company said the second quarter slowdown was temporary and that growth would improve in the second half of the year.

The company said it remains confident that it will meet analysts' consensus expectations for the current quarter and full-year. According to earnings tracking firm First Call Corp., EDS is expected to report a profit of 53 cents a share in the second quarter and $2.28 a share for the year.

Most analysts downgraded the stock. Morgan Stanley cut the stock from "strong buy" to "buy aggressive." Goldman Sachs cut EDS from "recommended" to "market outperform" and Merrill Lynch cut EDS to "near-term accumulate" from "near-term buy."

"In a stunning action late yesterday, management revised its base revenue forecast materially lower," Merrill Lynch analyst Stephen McClellan wrote in a research report. "This is a major disappointment and apparently followed a close review of May results and a reassessment of the 2000 outlook by the company. Revenue recovery seems uncertain now, and this is key to the ongoing turnaround story."

Not all investment firms were gloom and doom.

AG Edwards, however, banked on a second half rebound from EDS and upgraded the stock to "buy" from accumulate." SG Cowen also maintained a "buy."

EDS, which competes with IBM (NYSE: IBM) and Computer Sciences (NYSE: CSC), added that it "continues to realize cost savings and productivity improvements."