Tech Industry

Street shows support for EDS's new hire

Two Wall Street firms reiterate their "buy" rating on Electronic Data Systems stock, following the company's hiring of a new CFO.

Two Wall Street firms reiterated their "buy" rating on Electronic Data Systems stock this week, following the company's hiring of a new CFO.

Raymond James Financial and Brown Brothers Harriman both reinterated "buy" ratings on shares of EDS stock, which were trading at $47.56 this morning.

Raymond James' 12-month target price for EDS stock is $61 a share. Brown Brothers' long-term rating remains "neutral."

Plano, Texas-based EDS has had a busy month, first buying MCI Systemhouse, the Canada-based services arm of MCI WorldCom, for $1.65 billion, in a tit-for-tat IT outsourcing deal. This week, the world's No. 2 IT services firm also moved to fill a management void, hiring retired Price Waterhouse cochairman James Daley as its new chief financial officer. Daley fills a post that has been vacant since Jody Grant retired last March.

Raymond James analyst Richard Bove, in a research note, said Daley was likely lured to EDS by the company's new CEO Richard Brown, who has been on the job since January.

The firm said Daley's hiring will allow Brown to focus on his forte--generating new revenue through acquisitions--while Daley concentrates on the profitability of EDS's services contracts, which have drawn criticism from shareholders.

The company is currently embroiled in a legal battle with Xerox, which EDS said drove down fourth-quarter profits by 50 percent due to a charge related to the suit. EDS alleges Xerox stopped paying for contracted services last November. Xerox has called EDS's suit against the company a regrettable action. Critics say EDS's $3.2 billion, 10-year contract with Xerox was underpriced to start with.

Following EDS's earnings announcement this month, CIBC Oppenheimer reiterated a "buy" rating on EDS stock, noting that the weakness of the shares in an overall strong services market makes EDS an attractive buy.

In a research note, CIBC Oppenheimer said the MCI WorldCom deal puts EDS in a strong competitive position in the Canadian services market, lets the company save money by outsourcing its network, and will add to EDS's non-General Motors-related contract business. EDS's former parent company General Motors has been slowly shifting business away from EDS, which depends on the automaker for about a quarter of its revenue.