WASHINGTON, Nov. 20, 2015 – Time for a quick update on the current action in DC area-based Computer Sciences Corp (symbol: CSC), currently in the midst of a complex process that will conclude at the end of November with this longtime tech giant’s split into two separate companies.
In our previous article, we took readers and likely local stockholders here through the steps CSC has taken to accomplish its complicated split, which includes payment of a large special dividend and the simultaneous absorption by one of the “new” companies of yet another. Here’s how things have been proceeding, as of close of business on Thursday.
First and most obvious, where are “old” CSC and its pair of “new” when-issued stocks, CSC/WI and CSRA/WI? Both when-issued stocks are now trading on the NYSE, with CSC/WI coming on line a bit later than CSC/WI, which started trading Monday.
As is usually the case in such a transaction, the Thursday closing price of “old” CSC, $70.04, was approximately equal to the combined closing prices of CSC/WI ($27.10) and CSRA/WI ($32.50) if you also add in that special dividend of $10.50 that “old” CSC stockholders will be receiving when this corporate division officially takes place.
In other words, strictly speaking, there’s no particular “deal” in buying one entity over the other, except that, in the case of “old” CSC, you’re now simply buying that $10.50 special dividend that’s factored into that stock’s current price. However, since “old” CSC indicates that this special dividend will likely to be taxable to current shareholders receiving it—not always the case in similar transactions—potential new buyers might want to shy away from a purchase of “old” CSC at this point, unless the transaction is being made in a self-directed IRA.
Surveyed stock analysts have predicted that “old” CSC should end its life at slightly under $71.88 per share, with the pair of WI stocks trading roughly in line with that figure. Individual estimates range from $64-$81 per share at that point, but it’s looking likely now that the number will fall between $70-72 on its final date of trading.
Moving ahead, we’ll begin December with “old” CSC a fading memory, while the newly independent pair of companies will trade without the “WI” appended to the ticker symbol. It’s likely that neither stock will be rated by analysts at that time until their prices settle down a bit and until investors can determine what, if any, dividends will be paid out on each.
Prior to this month’s actions, analysts were rating “old” CSC as what we’d call a “strong-ish” buy. Surveyed analysts following the stock rated it as follows:
- 3 Analysts rate the company a strong buy
- 1 Analysts rate the company a buy
- 6 Analysts rate the company a hold
- 0 Analysts rate the company a sell
- 0 Analysts rate the company a strong sell
It’s anyone’s guess at this point what kind of ratings analysts will give to the two new companies or whether they’ll rate either of them at all for at least a time. For that reason, it’s difficult, at least for the moment, to figure out whether to buy, hold or simply watch.
We don’t make recommendations in our columns, which are intended as trading diaries that hopefully contain information that our readers can use when making their own decisions. That said, we still currently own shares of “old” CSC and have decided to hold on for the split plus the special dividend, since we hold the shares in a self-directed IRA account.
It will then be day-to-day for the new shares. We’re hoping both will declare reasonable dividends at some point and that both will continue to grow, given positive analyst reports on the pre-divided stock.
But you never know. We’ve ridden these things out before, and not infrequently, one of the new companies does significantly better than the other after a time. We’ll follow up with one update on the day the new stocks begin trading and another update, possibly in December, probably next year, once numbers, charts and new estimated earnings for the new companies become available.