The new star player at Electronic Data Systems ( EDS) -- CEO Michael Jordan -- is already struggling to score points with investors and customers. During a timeout meant to finalize earnings, EDS saw at least one analyst jump ahead and predict the final numbers for Jordan's first quarter of play. The results weren't pretty. Smith Barney analyst Patrick Burton, who already doubted Jordan's team could deliver on the promises made by past management, has grown even more pessimistic in recent days. In a research note issued Friday, Burton predicted that EDS might hit consensus estimates for the first quarter, but will drop the ball immediately afterward. Burton had already cast doubt on EDS's full-year earnings power, but he now believes the company will join him by shaving guidance when it releases its delayed financial update on Wednesday. "At its analyst day, CFO Bob Swan (then on the job for only a few weeks) had not indicated a great deal of confidence in the estimates," Burton pointed out. "We
also believe that EDS' last public projections are too high." Current guidance, issued before former CEO Dick Brown got booted, calls for EDS to deliver full-year earnings of $1.80 to $2 per share. Wall Street, in general, was already looking for EDS to miss with full-year profits of $1.70 per share. But Burton has been particularly bearish, projecting that EDS can generate full-year profits of only $1.55 per share -- and warning, through his latest update, of challenges that can threaten even that modest performance. On Monday, EDS fell $1.06 to $17.98.
But he's laid out an entire list of reasons why he expects EDS to miss its targets, adding that the stock could suffer when EDS acknowledges the shortfall. "In our experience ... guiding estimates down generally causes the stock to be weak," he said. "We
also believe the ongoing Securities and Exchange Commission inquiry and investors' 'show me' attitude toward EDS' cash-flow projections are likely to limit upside in the stock." Burton has a market-weight recommendation and $18 price target on the stock. EDS could hit other snags as well. After weathering several recent credit downgrades, EDS cannot afford to see its credit fall much further. A one-notch downgrade would trigger $238 million in cash obligations, while a two-notch fall taking EDS to junk would sever the company's access to a $500 million credit line. Already, the company faces the very real likelihood that it must pay $800 million -- perhaps a full year's cash flow -- to satisfy a put-able option that comes due in October. Still, even Burton believes some of these risks have already been priced into EDS shares. The stock, which fetched $54 last summer, has lost two-thirds of its value in the past year alone. Like Burton, most analysts recommend holding the stock for now. But on average, they expect the stock to remain at current depressed levels for at least another year.