EDS Gets Benefit of Doubt Thanks to Outlook

But Moors & Cabot analyst Cindy Shaw said she believes management is actually "setting the bar low to improve credibility with the Street."

"We believe EDS has turned the corner and its low margins and restructuring efforts set the stage for superior FCF and earnings growth over the next few years," she wrote. "In our view EDS has a long (three years or more) and arduous road ahead, but we believe the risk/reward is attractive over a 12 to 18 month horizon."

Shaw, who has a buy rating on EDS, raised her '06 earnings estimate to $1.01 from 77 cents. But she said she believes that could prove conservative, noting management indicated it expects to spend $300 million less on growth initiatives next year and EDS has beat the consensus estimate for four quarters in a row.

However, Shaw still assumes that EDS loses 45% of GM revenue in July 2006, resulting in a hit of 20 cents to earnings per share. Her firm hasn't done banking with EDS.