DXC Technology reported third-quarter earnings per share of $0.96, topping the consensus estimate of $0.83 and representing a 4.3% increase from the year-ago EPS of $0.92. However, the company’s revenue of $3.19 billion fell short of management’s internal target and declined 1% from $3.22 billion a year earlier. The mixed outcome—EPS upside coupled with a slight year-over-year revenue contraction—drove a sell-off in DXC shares despite the profit beat.

The beat in EPS reflects margin expansion in DXC’s cloud migration and applications services businesses, where operating margins improved by 120 basis points sequentially. DXC’s adjusted operating margin for the quarter reached 10.5%, up from 9.3% in Q2. Free cash flow for the trailing twelve months amounted to $925 million, supporting the company’s ability to reinvest in digital transformation initiatives and repurchase shares.

On a valuation basis, DXC trades at a price-to-earnings ratio of 6.85 and a price-to-sales ratio of 0.20, both near multi-year lows versus historical averages of 8.5 and 0.30, respectively. The enterprise value to sales ratio stands at 0.42, indicating that the market is valuing the company’s entire capital structure at less than half of its annual revenue. These metrics suggest that DXC shares may be undervalued relative to peers in the IT services sector.

DXC’s balance sheet shows an enterprise value to operating cash flow ratio of 3.45 and an earnings yield of 14.59%, underscoring strong cash generation relative to valuation. However, the company carries a debt-to-equity ratio of 1.53, reflecting significant leverage used to finance acquisitions and share buybacks. The current ratio of 1.09 indicates that DXC’s short-term assets slightly exceed its short-term liabilities, supporting operational liquidity.