Categories Analysis, Technology

Why Unisys (UIS) might not be a good investment option right now

The management is planning to enhance productivity and invest more in higher-margin, higher-growth segments

Unisys Corporation (NYSE: UIS) is one of the few tech firms that failed to take full advantage of the digital transformation wave spurred by the coronavirus. But the recent improvement in the stock’s performance shows the business is headed for a comeback as market conditions improve.

Read management/analysts’ comments on quarterly earnings

After staying profitable for a long time, the Blue Bell, Pennsylvania-based software maker lost momentum in the second half of the fiscal year. Investor sentiment took a beating from the slowdown set-off by the virus crisis. However, the stock bounced back after the initial slump, bringing cheer to shareholders, but there are concerns that the recovery might be short-lived. Market watchers forecast a decrease in value this year. In short, it makes sense to wait and watch for now, rather than buying the stock.

Services Lead

Though the company sells hardware products, about 90% of its revenues come from the services business. The encouraging demand conditions should positively influence the performance in the fourth quarter, which is a also seasonally favorable period for the company. Currently, the management’s strategy is to enhance productivity and invest more in higher-margin, higher-growth areas of the business.

Infographic: Seagate Technology Q2 2021 earnings

Unisys’ product pipeline has been expanding steadily despite the volatilities it faced in recent times, complementing the strong customer growth. Taking technological innovation to the next level, the company recently clinched a deal with the Defence and National Security Communities of Australia to conduct research on the use of artificial intelligence and machine learning to detect deceitful and persuasive writing.

Recovery Hopes

Unisys’ recent financial performance shows it is gradually recovering from the pandemic-induced slowdown. Though revenues plunged 34% annually to $495.2 million in the third quarter, they exceeded the market’s prediction. At $0.51 per share, adjusted earnings were nearly double that of the corresponding prior-year number and above the consensus estimates.

From Unisys’ third-quarter 2021 earnings conference call:

“We expect to be more successful in the public sector. So, that is an area where we really expect to double down and make a lot of growth and much progress in a larger market where there is a lot of other things going on, but we really like that public sector and we think we like it for very good reasons. We are very well known in that sector and we have very good capabilities that speak to that sector. In particular, every one of our cloud initiatives focuses on saving money.”

Stock Performance

Though Unisys’ stock has a long way to go before regaining its past glory, it made decent gains in the second half of 2020 and is currently trading at a multi-year high. The price has nearly tripled in the past twelve months, after slipping to the single-digit territory very often.

Looking for more insights?

Read the full conference call transcript here. It’s free!

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