DXC (DXC)

IT services provider DXC Technology (NYSE:DXC) met Wall Streets revenue expectations in Q3 CY2025, but sales fell by 2.5% year on year to $3.16 billion. The company expects next quarter’s revenue to be around $3.2 billion, close to analysts’ estimates. Its GAAP profit of $0.20 per share was 20% below analysts’ consensus estimates.

Company Overview

Born from the 2017 merger of Computer Sciences Corporation and HP Enterprise's services business, DXC Technology (NYSE:DXC) is a global IT services company that helps businesses transform their technology infrastructure, applications, and operations.

IT Services & Consulting companies stand to benefit from increasing enterprise demand for digital transformation, AI-driven automation, and cybersecurity resilience. Many enterprises can't attack these topics alone and need IT services and consulting on everything from technical advice to implementation. Challenges in meeting these needs will include finding talent in specialized and evolving IT fields. While AI and automation can enhance productivity, they also threaten to commoditize certain consulting functions. Another ongoing challenge will be pricing pressures from offshore IT service providers, which have lower labor costs and increasingly equal access to advanced technology like AI.

DXC Technology competes with global IT services providers such as Accenture (NYSE:ACN), IBM (NYSE:IBM), Cognizant (NASDAQ:CTSH), and Infosys (NYSE:INFY), as well as with cloud service providers like Microsoft (NASDAQ:MSFT) and Amazon Web Services (NASDAQ:AMZN).

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $12.71 billion in revenue over the past 12 months, DXC is larger than most business services companies and benefits from economies of scale, enabling it to gain more leverage on its fixed costs than smaller competitors. This also gives it the flexibility to offer lower prices. However, its scale is a double-edged sword because it’s harder to find incremental growth when you’ve penetrated most of the market. To expand meaningfully, DXC likely needs to tweak its prices, innovate with new offerings, or enter new markets.

As you can see below, DXC struggled to generate demand over the last five years. Its sales dropped by 7.6% annually, a rough starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. DXC’s annualized revenue declines of 4.8% over the last two years suggest its demand continued shrinking.

DXC also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, DXC’s organic revenue averaged 4.5% year-on-year declines. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, DXC reported a rather uninspiring 2.5% year-on-year revenue decline to $3.16 billion of revenue, in line with Wall Street’s estimates. Company management is currently guiding for flat sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 1.3% over the next 12 months. Although this projection is better than its two-year trend, it’s hard to get excited about a company that is struggling with demand.

DXC was profitable over the last five years but held back by its large cost base. Its average operating margin of 2.7% was weak for a business services business.

On the plus side, DXC’s operating margin rose by 5 percentage points over the last five years.

In Q3, DXC generated an operating margin profit margin of 4.4%, down 1.4 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

DXC’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For DXC, its two-year annual EPS growth of 68.5% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, DXC reported EPS of $0.20, down from $0.23 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects DXC’s full-year EPS of $2.02 to shrink by 36.9%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

DXC has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.6%, subpar for a business services business.

Taking a step back, an encouraging sign is that DXC’s margin expanded by 13.1 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

DXC’s free cash flow clocked in at $411 million in Q3, equivalent to a 13% margin. This result was good as its margin was 11.5 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

DXC historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.1%, lower than the typical cost of capital (how much it costs to raise money) for business services companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, DXC’s ROIC decreased by 4.6 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

DXC reported $1.89 billion of cash and $4.69 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.87 billion of EBITDA over the last 12 months, we view DXC’s 1.5× net-debt-to-EBITDA ratio as safe. We also see its $35 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

Revenue was in line, and DXC's EPS missed Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $12.94 immediately after reporting.

Updated: December 3, 2025 at 11:07 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in DXC.

We see the value of companies helping their customers, but in the case of DXC, we’re out. For starters, its revenue has declined over the last five years. And while its scale makes it a trusted partner with negotiating leverage, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its projected EPS for the next year is lacking.

DXC’s P/E ratio based on the next 12 months is 4.4x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $14.50 on the company (compared to the current share price of $13.59).