Goldman Sachs published a report entitled “Americas: Technology: IT Services” on January 11, 2012. The report isn’t publicly available but we will discuss its main points. In their report, Julio C. Quinteros Jr., Vincent Lin, Roman Leal, and Geo John are defensive for the IT services sector in the year 2012. Goldman Sachs (GS) is concerned about the “current macro backdrop, with expectations for a slower global growth clouding visibility as we head onto 2012”. They have concentrated on stocks that are U.S. based mentioning a number of buy and sell rated stocks. Here are Goldman Sachs’ sell rated stocks.
Computer Sciences Corporation (CSC) provides information technology and professional services to both the government and commercial enterprises. Goldman Sachs has given the company a sell rating and remains cautious on its valuation. Computer Sciences Corporation has significant exposure to the Department of Defense which is looking to cut budget in 2012. Also, Goldman Sachs is of the opinion that due to Computer Sciences Corporation’s sluggish booking and a potential loss of the NHS contract, its shares are going to be impacted negatively. Shares of the company are currently trading at $24.9 per share and are expected to go south of $22 by the end of 2012. Glenview Capital sold its entire $42 million position in CSC during the third quarter.
CSG Systems International, Inc. (CSGS) provides outsourced customer care and billing solutions for North America. It has been given a sell rating by Goldman Sachs due to its exposure to the U.S. cable/satellite vertical services. CSG Systems also has a long sales cycle of transformation software deals that are resulting in headwinds. With a lower expected demand for ancillary services in the company’s core processing business, its valuation will most likely be negatively impacted. Shares of the company are currently trading at $15.7 per share and are expected to go south of $13. Currently, it has a price-to-earnings ratio of 18x. Intrepid Capital Management had $26 million in CSGS at the end of September.
Convergys Corporation (CVG) provides relationship management solutions on a global basis and operates in both the Customer Management and Information Management sectors. Goldman Sachs has given the company a sell rating because it believes that Convergys is a low growth company with lower returns to scale. Goldman Sachs recently increased its expected target price due to a higher implied CY2012 price-to-earnings ratio of 12x versus the earlier estimate of 10.9x. This is based on an improvement in the company’s growth prospects with regards to volume. Convergys also recently announced that it is going to buy back shares. Its shares are currently trading at $12.8 per share and are expected to fall to a price target of $11. Barry Rosenstein sold 41% of his stake in CVG during the third quarter.
Equifax, Inc. (EFX) collects, organizes, and manages various financial, demographic, employment, and marketing information solutions for businesses and consumers. Goldman Sachs has given the company a sell rating. Shares of the company are currently trading at $39 per share and are expected to fall to a price target of $36 per share. The price target is based on the CY2012E price-to-earnings ratio of 14.6x. Equifax is expected to generate an estimated return on capital of 10%. The price target was recently revised by Goldman Sachs taking into account improved operating results and recent multiple expansions for Equifax. Eminence Capital had the largest stake in EFX among the 350 hedge funds we are tracking.
Pitney Bowes, Inc. (PBI) provides mail processing equipment and integrated mail solutions on a global basis. It has been given a sell rating by Goldman Sachs. The company is currently facing protracted weakness in the SMB sector which could limit its valuation in the near future. Earnings growth is also reporting a slowdown but its consistent dividend yield of 8% will provide some support to the stock prices. Shares of the company are currently trading at $19.3 per share and are expected to go south of $18 per share by the end of 2012. Ray Dalio’s Bridgewater Associates sold its entire position in the company during the third quarter.
Solera Holdings, Inc. (SLH) provides software and services to the automobile insurance claims processing industry. It has been given a sell rating by Goldman Sachs. Solera Holdings has a significant exposure to the European markets in the near-term. Goldman Sachs recently lowered the price target for the company due to headwinds caused by an increase in financial expenditures. Its shares are currently trading at $43 per share and are expected to reach a price target of $41 per share. The company has a price-to-earnings ratio of 19.3x. Jim Simons’ Renaissance Technologies reduced its position in Solera by 11% during the third quarter.
