Computer Sciences' Destiny

Strong cash flow and a stagnant stock make it ripe for a buyout.
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Any fund manager can see the benefit of eliminating tech problems.

Perhaps that's why

Computer Sciences

(CSC)

, the computer outsourcing company rumored to be in the process of a buyout, is so attractive. The company provides a service that would enable managers to do their jobs and leave IT issues up to someone else.

CSC continues to move Friday on reports that it could be acquired by the private equity group Blackstone and computer giant

Hewlett-Packard

(HPQ) - Get Report

. While the cash generated by CSC makes the company particularly alluring for a buyout, potential integration problems at H-P might not make the acquisition a good idea.

Bill Shope of J.P. Morgan said this morning in a note that although a buyout of CSC is probable, H-P as the buyer is unlikely.

"We suspect H-P will seek to grow its outsourcing business slowly and organically, particularly since it is likely the current management team is dealing with the uncomfortably aggressive strategy of the previous management team in outsourcing," said Shope.

H-P's finances don't preclude a takeover bid. The company has almost $14 billion cash to spend, and CSC's net debt is only around $1 billion. Its stock has also stood up well to the reports, rising modestly since the news broke in the

Wall Street Journal

Thursday morning.

Regardless of the bidder, CSC looks ripe for taking private, leading investors to bid it up 8% since Wednesday's close. The company's financials make it a sitting duck: continued strong cash flow, a stagnant stock price over the past year, and projected EPS growth estimated to be in the double digits over the next year.

While the company might have a few problems on the horizon -- "fierce competition in outsourcing and a slew of contracts that could soak up capital," says Giridhar Krishnan from Morningstar in a research report this morning -- demand for its services remains robust.