CSC-NHS Tussle Ends, Deal Renewed - Analyst Blog

By Zacks | September 05, 2012 AAA

Virginia-based tech giant Computer Sciences Corporation (CSC) finally saw the end to its long-drawn dispute with the U.K. government's National Health Service (NHS), which agreed to renew the existing contract for a period of four years. Computer Sciences will therefore continue to provide technological support to healthcare organizations under the NHS trust.

The NHS is a government-funded healthcare system to serve citizens of England and other parts of the U.K. Contracts to support the NHS with technological products and solutions are delegated by the U.K. Department of Health (DoH). In 2002, the DoH initiated a program (NHS National Programme for IT) to enhance the scope of NHS. Computer Sciences was selected as one of the prime contractors to support the program.

But in September last year the government decided to scrap the whole program as the contractors were found incapable of delivering the necessary IT services required for the NHS program. Computer Sciences was also held responsible due to its inability to meet the project deadline.

Though the contract was not terminated at the time, the U.K. DoH reduced the scope and value of the contract for Computer Sciences. The revised terms required CSC to install IT systems in the Midlands, North and East of England.

The issue has been under consideration for the past few months. Now, after securing approval from related government officials, it has been finalized that Computer Sciences will deploy and implement an electronic patient record system within the NHS, through its Lorenzo Regional Care software products. Computer Sciences will also be allowed to serve the NHS across England, instead of the previously determined areas of the Midlands, North and East of England.

The uncertainty regarding the NHS issue was actually weighing on Computer Sciences' shares, which have been on a decline over the past few months. But now we believe that the contract revival will act as a catalyst, driving up share prices.

Despite strong European exposure, strained federal budgets and stiff competition from Accenture plc (ACN) and Hewlett-Packard Company (HPQ), Computer Sciences retains a Zacks #2 Rank, implying a short-term Buy rating, mainly on the resolved NHS issue.

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