Jefferies starts on Unisys with “hold” rating as growth prospects emerge

Investing.com -- Jefferies initiated coverage on IT services provider Unisys (NYSE:UIS) (UIS) with a “hold” rating, highlighting early signs of a potential turnaround in the company’s performance, in a note dated Monday. 

“After multiple iterations of trying to execute a turnaround, there are signs the current strategy may be the right one,” the brokerage said.

Revenue has remained stable in 2025, while bookings and new client wins have accelerated, setting the stage for a projected growth inflection in 2026.

Unisys has been gradually shedding its legacy status, with investments in modern solutions beginning to resonate with both existing and new clients. 

Revenues have hovered around $2 billion since 2022 but show potential for growth as the pipeline expands. 

Jefferies noted that “highly focused marketing of the rebranded company has resulted in new logos now making up over half of the opportunity pipeline,” signaling early traction in customer acquisition.

Total contract value (TCV) trends remain lumpy, driven largely by the volatile Licensing and Subscription (L&S) segment. 

Excluding L&S, growth has been more encouraging. In Q4 FY24, ex-L&S new business TCV grew 24% year-over-year, accelerating to 83% in Q1 FY25 before declining 43% in Q2 FY25 due to tough comparisons. 

Despite the swings, year-to-date TCV is up 15% compared with the prior year, and management expects 2025 to be strong for renewal activity.

Revenue growth for 2025 is expected to be modest at 0.3% year-over-year on a constant currency basis, following flat growth in 2024. 

Most of the increase is anticipated in the second half of 2025 as renewal activity improves and deals secured last year ramp up. 

Jefferies projects revenue growth of 3.3% in 2026 and 3.7% in 2027, based on modest improvements in overall IT services spending.

Unisys’ balance sheet reflects combined debt of $693 million and pension liabilities of $552 million, totaling roughly $1.2 billion in obligations against $301 million in cash, yielding a net debt-to-EBITDA ratio of about 3.5x. 

The company has reduced pension liabilities over the past five years and recently issued $700 million in notes to refinance debt and fund the pension plan, aiming to reduce profit-and-loss volatility. 

“Pension liability now less of an issue,” Jefferies said, noting the company’s efforts to lock in asset/liability matching.

Jefferies set a price target of $4, based on a below-peer 7x P/E multiple applied to a 2026 adjusted EPS estimate of $0.57. 

Adjusted for pension liabilities, the P/E multiple rises to roughly 16.0x. While progress in the turnaround is noted, the brokerage said it is “harder to justify a materially higher multiple given that many industry-leading IT Services companies with proven track records are trading below 13x.”

The brokerage underscores Unisys’ transition from legacy products to modern solutions, with early success in new business wins expected to support revenue growth. 

Jefferies anticipates revenue growth to remain flat to slightly positive, while balance sheet constraints may limit reinvestment.

Jefferies outlined scenarios for 2026: a base case of $4 reflecting limited growth, an upside of $6.50 assuming strong growth and stable margins, and a downside of $2 if economic or operational setbacks occur.