EDS ( EDS) could be poised for another crash. The computer services giant is set to release quarterly results that, some fear, could once again disappoint investors who have been waiting two years for the company to debug its own business model. Indeed, analysts last week were already bracing for the worst. Cynthia Houlton of RBC Capital Markets predicted on Friday that EDS would likely miss earnings estimates -- delivering a bigger loss than expected -- and then lower both its profit and cash-flow projections for the entire year. She expects the company to post a first-quarter loss of 3 cents a share, 2 cents worse than the consensus estimate, and shave up to a dime off its second-half profit forecast. She also suspects that the company's guidance for cash flow, currently set at $500 million to $600 million, could drop by roughly one-fifth. Houlton expressed particular concern about EDS' problem contracts, including a huge one with the Navy, and a government investigation into the company's past disclosures. Given the serious challenges ahead, Houlton considers EDS' stock -- down 14 cents to $19.38 on Friday -- very expensive. "Our price target ($15) is notably below current share price due to continued concern about the weakness in EDS's core business," she wrote. "We continue to encourage investors to take profits on EDS, given its current valuation and further downside to profits and cash flow during the next 12 months."
Houlton has company in the bear camp. UBS analyst Adam Frisch -- who detected EDS' problems before most -- has consistently warned his clients away from the big Texas company. Frisch joined Houlton on Friday in airing concerns about the company's upcoming results in particular. Frisch, too, expects EDS to miss the consensus estimate and slash its cash-flow projections for the year. He believes that EDS will post weak contract bookings and report additional problems with projects that are already in place. Specifically, he warns that the Navy contract could once again jeopardize cash flow -- and possibly trigger big impairments -- while the company's more attractive contract with General Motors ( GM) continues to shrivel.