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Shares in IT outsourcing company Computer Sciences Corp soared as much as 25 per cent in the morning session as the company wrote down losses from a UK government contract.
The shares pared gains but still closed up 18.5 per cent to $31.39.
CSC booked a loss of $1.5bn, or almost $10 a share, on a contract to computerise the records of the UK’s National Health Service. Shares had fallen 50 per cent in the 12 months to the end of last week on concerns about the UK contract and an accounting probe by the Securities and Exchange Commission, and, although CSC had pre-warned about the writedown in late December, some analysts said the move provided a degree of closure for investors.
“The risk of further large writedowns is significantly smaller than it was yesterday,” said Tien-Tsin Huang at JPMorgan. “People feel like we may have seen a bottom for CSC.”
But other analysts were unimpressed, and suggested investors might be well advised to take profit, with CSC now trading at an earnings multiple equal to industry peers.
“To say CSC should trade in line with its peers when it can’t give guidance for 2012, is subject to an SEC accounting investigation and has the overhang of further potential losses on the UK NHS contract is presumptuous,” said Darrin Peller at Barclays Capital.
He said the share price move was largely a result of short sellers covering positions. More than 10 per cent of available CSC stock had been on loan to short sellers at the start of the day, with many investors anticipating a sell-off if the company declared a larger writedown on the NHS contract.
Elsewhere, US stocks climbed, but gains were moderate as eurozone worries once again weighed on Wall Street.
The S&P 500 climbed 0.2 per cent to 1,349.96. The Dow Jones Industrial Average edged up 5 points to 12,883.95, while the Nasdaq Composite index rallied 0.4 per cent to 2,915.86.
Energy stocks were the laggards with coal miners falling for a second successive day, as SocGen analysts said iron-ore shipments to China through Australia’s Port Hedland fell in January compared with December.
Peabody fell 1.6 per cent to $41.27 and Alpha Natural Resources fell 2.1 per cent to $21.85.
Option traders appeared sceptical about the latest rally in the face of renewed Greek default concerns, with data showing large bearish bets that would profit from a fall in the Dow Transport index.
The index is closely watched as a leading indicator for movements in broader indices.
But some analysts remained bullish. “Given other efforts to stabilise the eurozone, we tend to think a Greek default would only lead to a momentary pullback in US stocks, lasting one or two days, and indeed would present a good buying opportunity,” said Randy Frederick, managing director for active trading at Charles Schwab.
Luxury clothing chain Ralph Lauren rose 9.2 per cent to $17.73 after forecasting stronger than expected 2012 revenue.
Unlike jeweller Tiffany , Ralph Lauren did not see a slowdown in US or European sales in the fourth quarter, leaving investors free to focus on strong sales growth in emerging markets that Ralph Lauren reported in common with other luxury brands. The company also raised its forecast for 2012 margins.
“If we were to look for trouble, a cause for concern could be the recent gross margin deterioration, which reflects an increasing amount of technology resale that both boosts revenue growth and hurts gross margin,” said George Hill at Citigroup, although, along with most other analysts, he was upbeat on the results.
Bank stocks traded higher despite the Greek concerns. Citigroup was up 3.5 per cent to $34.23 and Bank of America topped $8 for the first time since September, closing up 3.6 per cent to $8.13 for the best performance in the Dow Jones Industrial Average.
Walt Disney shares climbed 0.7 per cent to $41.27 as earnings rose despite flat revenues.
The initial public offering of Caesars Entertainment made a surprise leap on its debut, jumping 71 per cent to $15.39 over its $9 debut price, the most of any US IPO since Zillow last July.
The offering of just 1.8m shares had been intended only to provide liquidity to a small clutch of investors in its 2008 leveraged buyout, ahead of potential larger exits by investors such Paulson & Co, Apollo Group and TPG Capital. But traders said that retail investors swooped on the offering at the discounted valuation, despite the risk of future dilution.
Source:http://www.ft.com/intl/cms/s/0/5231a8f8-5264-11e1-a155-00144feabdc0.html#axzz1llILQk4A
