Wednesday, December 06, 2006


The WSJ’s „Heard on the Street” column discusses favorably Electronic Data Systems (EDS), which is completing the first stage of a turnaround under CEO Michael Jordan. EDS officials say sales are on track to total $21.1-21.3bn this year, while adjusted profits are likely to double. Debt that stood at $5bn in ‘03 has been cut to $3.1bn. To help revive the firm, Mr. Jordan restructured contracts EDS was having trouble handling such as by seeking more-favorable terms. He also cut costs by centralizing some business functions, diversified into additional support services and targeted new accounts. Six Wall Street analysts recently upgraded recommendations to the equivalent of Buy from Hold.

Also Barron’s Online pushing EDS (EDS), saying that the last few years it's been a climbing out of a pile of debt and cutting costs. But in June, EDS spent $380m for a majority stake in Mphasis, a competitor to Infosys. That acquisition gives EDS a 20K-strong workforce scattered across India, China, South America and Europe. The investment is a bet by CEO Michael Jordan that the co can move from being a turnaround story to one of growth by doing less of the old work of installing computers and more of the new, flashy high-margin IT services such as running the finance or human resources operations for a co. That makes EDS one of the most interesting ways to speculate on offshoring over the next year. "They're playing catch up with Infosys and the Indian firms, but there's no competitive advantage that Infosys has that EDS can't match," says Thomas Hunt III, of Eagle Global Advisors' domestic large cap growth fund. "Infosys' dominance is mkt share for them to lose and for EDS to gain," says Hunt.

“Inside Scoop” section reports that Fine Capital Partners increased its holdings in RedEnvelope (REDE) to 908K shares, a 9.46% stake. "We think the new CEO is very talented and has lots of experience in turning around Internet-based franchises," says Fine. "We think RedEnvelope has a lot of brand value and we think it is extremely cheap on a price-to-sales ratio."

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