Turnarounds That Haven't Turned Around: Unisys (UIS)

Unisys Corp. (NYSE:UIS) is a company that if you look at the chart you might just consider dead rather than a pure turnaround.  Revenues have stayed around $5.7 to $5.8 Billion for the last 3-years and the official estimates for 2008 aren’t calling for much more (see below for company projections). 

This one saw its hay-day in the mid to late 1980’s and then again in the late 1990’s.  Shares are not quite at an all-time low, but they might as well be.  Maybe the obvious industry trend of IT-outsourcing is partly to blame, but that trend may be secular rather than a temporary convenience or a temporary opportunity.  It could go acquire an IT-outsourcing company if its books were stronger.  The market cap for Unisys is $1.6 Billion and it trades at paltry valuations compared to its more profitable peers.  Interestingly enough, the company posted an operating profit of $43.6 million in the last quarter, although revenues were down 1% (after a 3% positive currency impact).

With the last earnings release, President/CEO Joseph McGrath said, "We are laying the foundation for improved revenue trends in 2008. We are focused on continuing to enhance our profitability in the fourth quarter and we continue to drive toward our goal of an 8-10 percent operating profit margin, excluding retirement expense."  If you trust the comments, this one sounds good.  If you are a skeptic and look only at a chart you’d question this statement.  The company needs a plan to curb employee retirement costs, although anyone can ask an auto company how easy that is to pull off.

The company is not alone in the service and technology sector as there are many others in the same spot that are either losing money or are not consistently profitable.  But after a multi-decade operating history you’d expect companies to know how to operate at profitability.

Wall Street analysts rarely make any major calls on this one and we don’t have mush recent to go on.  When you backdate the news and look at the history of the company you’d think that the turn may have already started.  But shares are barely above 52-week lows and are barely off of multi-year lows too. 

This and others routinely get screened for special situation newsletters and also for the "10 Stocks Under $10" weekly newsletter.

Jon C. Ogg
December 18, 2007

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