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Electronic Data Systems


has crashed again.

For the second week in a row, the company has abruptly delayed the release of its third-quarter earnings report due to discussions with its auditors. The company once again cited a possible impairment charge on its most troubled contract for the holdup. But it also revealed possible issues that could affects its past results as well.

Robert Djurdjevic, an industry analyst at Annex Research, marveled at the recent developments.

"Frankly, this makes the company look extraordinary unprofessional," Djurdjevic said. "This kind of behavior does not befit a publicly traded company -- certainly not one of the type and size of EDS."

Christopher Penny, an analyst at Friedman Billings Ramsey, was stunned the first time around.

"Of all the things that EDS could have announced last night," Penny wrote last week, "no one had ever considered the prospect that the company would not even announce at all."

Penny has an underweight rating and $14 target price on the company's stock. The shares fell 2.4% to $20.65 ahead of Wednesday's news, making Djurdjevic wonder whether some saw the second delay -- and possible restatement -- coming.

EDS said that KPMG identified "certain issues related to quarterly bonus plan accruals" that could require changes to past quarterly reports but should not affect full-year results. The news came just one week after EDS first delayed its third-quarter earnings report because of a possible charge on its big Navy Marine Corps Intranet, or NMCI, contract.

Last week, however, EDS offered some reassuring guidance along with the bad news. It said that revenue should meet expectations and earnings should beat them. It followed up the next day with news of additional staff reductions that helped fuel a rally in its shares. It tried to be upbeat on Wednesday as well.

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"Noting significant progress in its core business," EDS stated, "the company said it believes the accounting issues will be resolved expeditiously without impact to its business and will not affect the strong improvement under way."

Still, analysts continue to fret over the company's ongoing glitches.

Adam Frisch of UBS last week raised concerns about the Navy contract in particular. Ultimately, Frisch worries that the Navy job will generate only modest cash flow in the end -- "a significant disappointment given its size" -- and feels that some investors may be unwilling to forgive the special charges that keep resulting from the deal.

Management has repeatedly lowered its cash flow guidance and lost some credibility with the market because of the troubled contract.

"Bearish investors may view this as yet another reason to doubt management and wonder how many times can EDS take a one-time charge before it is viewed as recurring," wrote Frisch, who only last month lifted his longstanding reduce rating on EDS to neutral.

Penny is bracing for another cut to management's cash flow guidance as a result of the possible impairment charge. But he also warns of challenges outside the Navy deal.

"We question what other contracts currently still have problems that management is not aware of," Penny wrote. "Not only that, but investors need to look at the other part of the press release: bookings."

Last week, EDS said it had booked $3.3 billion worth of new business during the latest quarter. Penny was expecting $700 million more. And he, among others, now questions whether the company can realistically book enough business in the fourth quarter to meet its full-year target.

To achieve its goal, Penny says, EDS must grow fourth-quarter bookings by nearly 50%. But, he adds, EDS has been posting lower bookings four years in a row.

Looking ahead, Penny worries about both existing and new business at EDS.

"Clearly, NMCI continues to lag expectations," he wrote. "But after that, the prospects for future growth are still up in the air, and the bookings show that revenue will be -- at best -- flat for the next few years. ... The investment thesis goes beyond NMCI."

Penny's conclusion: "The company is not yet poised for the turnaround that some investors believe is imminent."