Unisys Stock: A Calculated Hold Before Q2 Earnings Amid Technical Weakness and Earnings Uncertainty

Unisys Corporation (NYSE: UIS) stands at a crossroads as it approaches its Q2 2025 earnings release on July 30. For investors contemplating whether to buy, sell, or hold the stock in the near term, the decision hinges on a delicate balance between deteriorating technical signals and the company's precarious earnings outlook. While Unisys has shown glimmers of strategic progress, its financial and operational challenges suggest a cautious approach remains prudent.

Technical Signals: A Bearish Undercurrent

The technical indicators for Unisys paint a mixed but largely bearish picture. The stock currently trades at $4.31, below its 50-day ($4.58) and 200-day ($5.57) moving averages—a classic sign of a downtrend. The Moving Average Convergence Divergence (MACD) is negative (-0.05), reinforcing the sell signal, while the Relative Strength Index (RSI) at 49.36 suggests the stock is in a neutral but vulnerable position.

The stock's price action also reveals a lack of conviction. Despite a 5-day exponential moving average (EMA) of $4.32, the broader trend remains bearish, with the 10-day EMA ($4.32) and 20-day EMA ($4.34) offering minimal support. The Williams %R at -30.19 hints at a potential short-term buying opportunity, but this is offset by a Stochastic indicator (STOCH) at 84.91, signaling overbought conditions in the short term.

Volume trends add to the unease. While average daily trading volume of 4.73 million shares suggests moderate liquidity, the short interest of 1.37 million shares (2.08% of the float) indicates a notable bearish bias. If short sellers begin to cover their positions ahead of the earnings report, this could exacerbate volatility, potentially triggering a sharp but temporary price spike.

Earnings Risks: A History of Volatility

Unisys's earnings history is a tale of extremes. In Q2 2024, the company defied expectations with a $0.16 EPS, far exceeding the Zacks Consensus Estimate of a $0.37 loss. However, this outlier performance contrasts sharply with the projected Q2 2025 loss of $0.28, a 312.5% decline from the prior-year quarter. Analysts have not revised their forecasts in the past 30 days, signaling a stable but pessimistic outlook.

The company's guidance for Q2 2025 includes a non-GAAP operating margin of 2.8% and L&S revenue of $410 million. These targets, while modest, must be viewed through the lens of broader operational challenges. Unisys has struggled with declining revenue, a 7.02% year-over-year drop to $445 million expected in Q2. The recent $700 million senior secured notes offering, priced at a 10.625% interest rate, underscores the market's skepticism about the company's ability to stabilize its cash flow.

Moreover, the company's debt burden has increased significantly. The refinancing of its 2027 debt to 2031, while extending maturity, comes at the cost of higher interest expenses. With a liquidity ratio of 1.67 and a projected pre-pension free cash flow of $100 million by year-end, Unisys must navigate a tightrope between liquidity and leverage. A missed earnings target could trigger a sell-off, particularly given the stock's beta of 1.33, which amplifies market volatility.

Strategic Gains vs. Structural Weaknesses

Unisys has made strides in securing large contracts, including a global procurement deal for 380,000 devices and a DSS contract for 21,000 devices. These wins highlight the company's ability to compete in niche IT services, particularly in cybersecurity and cloud solutions. NelsonHall's recognition of Unisys as a leader in Attack Surface Management (ASM) further validates its technological strengths.

However, these positives are overshadowed by structural weaknesses. The company's U.S. pension liabilities, despite a $250 million discretionary contribution, remain a drag on cash flow. The July 24 conference call with CEO Mike Thomson and CFO Deb McCann will be critical in addressing investor concerns about the pension strategy and its impact on operational flexibility.

The Case for a Hold Strategy

Given the technical and fundamental headwinds, a hold strategy appears most appropriate. The stock's position below key moving averages and the lack of a clear breakout signal suggest that aggressive buying is ill-advised. Conversely, the risk of a sharp decline in Q2 earnings, coupled with the elevated short interest, makes a sell decision equally unattractive without a clearer catalyst.

Investors who hold should monitor three key metrics in the coming weeks:
1. Earnings Surprise Potential: A beat on the $0.28 loss estimate could spark a short-term rebound, but the margin of error is slim.
2. Debt Metrics: Watch for signs of liquidity stress, particularly in the context of the new high-yield debt.
3. Pension Contributions: Any further discretionary funding could signal a shift in management's priorities but may also raise red flags about financial flexibility.

Conclusion: Patience as a Virtue

Unisys's Q2 earnings report will be a pivotal moment, but the current environment favors patience. The technical indicators and earnings risks collectively argue against aggressive action. While the company's strategic initiatives in cybersecurity and contract wins offer hope, they remain unproven in the context of its broader financial challenges. For now, a hold strategy allows investors to avoid the near-term volatility while waiting for clearer signals from the earnings report and subsequent guidance.

In a market where sentiment can shift rapidly, the disciplined investor will find strength in restraint. Unisys may yet surprise to the upside, but the path to recovery is fraught with obstacles that demand careful navigation.