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Stock Analyst Update

EDS' Stock Is Going Nowhere Fast

Expense controls are working, but topline growth is stagnant.

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Electronic Data Systems (EDS), one of the world's oldest and largest information-technology consulting firms, has a problem: the law of large numbers. With worldwide operations that dwarf most of its competitors, the company may simply be too large to grow fast anymore. And until EDS can somehow get around this, investors would be well advised to avoid buying the stock.

The company's results from the quarter ended June 30, released Thursday, met analysts' recently lowered estimates. By tightly controlling expenses, earnings per share rose about 20%, to $0.53 from $0.44 in the prior-year period, excluding one-time gains. Total revenue growth, however, was less than 1%, and revenue from the company's largest customer, General Motors (GM), decreased 8% in the quarter.

Mark Sellers does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.