DXC Technology maps turnaround at investor day, targets margin growth

DXC Technology laid out a multi-year turnaround plan at its investor day on Thursday, promising margin expansion and revenue stabilization after years of restructuring.

The company, which provides IT services and outsourcing, said it expects adjusted operating margins to reach 8% to 9% by fiscal 2028, up from roughly 6% in the most recent fiscal year. Management also projected flat to slightly positive organic revenue growth over the same period, a shift from the declines that have dogged the business since its 2017 merger of Computer Sciences Corp. and Hewlett Packard Enterprise's services unit.

CEO Raul Fernandez, who took the top job in early 2024, framed the plan around three priorities: simplifying DXC's sprawling service portfolio, investing in higher-margin digital offerings like cloud migration and AI consulting, and cutting costs through automation and offshoring. The company has already shed several non-core businesses, including its U.S. public sector arm and its insurance software unit, to sharpen focus.

"We are not trying to be everything to everyone," Fernandez said during the presentation. "The market has told us that complexity was a liability. We are stripping it out."

The investor day came as DXC faces pressure from activist investor Legion Partners Asset Management, which holds a roughly 5% stake and has pushed for faster cost cuts and a potential sale. DXC's stock has fallen about 15% over the past year, trailing the S&P 500 and peers like Accenture and Cognizant.

Management set a fiscal 2028 free cash flow target of $1.5 billion to $1.8 billion, up from $1.1 billion in fiscal 2026. The company also plans to return at least 50% of free cash flow to shareholders through buybacks and dividends, a shift from its recent practice of prioritizing debt reduction.

DXC's balance sheet carries about $4 billion in net debt, which the company said it aims to cut to roughly 2 times EBITDA by fiscal 2028, down from about 3 times currently.

Analysts on the call pressed for details on how DXC would achieve its margin targets without sacrificing revenue growth. CFO Rob Delaney pointed to a multi-year cost-reduction program targeting $800 million in annual savings by fiscal 2028, largely from consolidating data centers, automating service delivery, and reducing headcount in low-margin legacy businesses.

"The savings are real and they are already showing up in the numbers," Delaney said. "We have line of sight on every dollar."

DXC's digital revenue, which includes cloud, security, and AI-related services, now accounts for about 35% of total revenue, up from 25% two years ago. Management expects that share to reach 50% by fiscal 2028.

The company maintained its fiscal 2027 adjusted EPS guidance of $4.50 to $5.00, above the consensus estimate of $4.35 at the time of the guidance. DXC shares rose 3.2% in morning trading following the presentation.

Legion Partners did not comment publicly on the investor day. The activist firm has previously said it sees "significant" value in DXC's assets and has pushed for a strategic review. DXC's board has not signaled interest in a sale.

DXC's next quarterly earnings report is scheduled for early August.