SYKES Enterprises: No Debt, Nice Cash Safety Net

Dec. 2.08 | About: Sykes Enterprises, (SYKE)

SYKES Enterprises Inc. (NASDAQ:SYKE) finds itself in an enviable position during this credit crisis with no debt and a cash safety net of $220.1 million. The customer service business continues to be strong with revenue climbing 17.6% in the third quarter. SYKE is trading with a forward P/E of 11.9.

Company Description

SYKES provides customer service solutions to Fortune 1000 companies around the world. Customers are mainly in the communications, financial services, healthcare, technology and leisure industries.

The company emphasizes customer support outsourcing solutions, especially on inbound technical support and customer service. SYKES has two geographic segments: the Americas (which includes the Asia Pacific region) and EMEA (Europe, Middle East and Africa.) For EMEA, the company also provides multi-lingual sales order processing, payment processing and inventory control.

Revenue Jumped 17.6% in the Third Quarter

On Nov 3, SYKES reported third-quarter 2008 earnings that beat Wall Street estimates by 67.86%. Net income was $19.5 million, or 47 cents per share, compared to $12.3 million, or 30 cents, in the third-quarter 2007. Analysts expected only 28 cents.

Revenue grew 17.6% to $207.1 million from $176.1 million in the year ago period. Revenue increased in both business segments.

In the Americas segment, revenue rose 14.9% to $138.6 million, or 66.9% of total revenue, up from $120.6 million a year ago. The growth was primarily due to demand from existing and new client programs in the financial services, communications, transportation and technology areas.

EMEA also saw revenue growth of 23.3% to $68.5 million, up from $55.5 million in third-quarter 2007. The increase was due to an increase in customer care demand and also a stronger Euro.

Rolling in Cash

SYKES is in the enviable corporate club of being debt free. As of Sep 30, the company had $220.1 million in cash or cash equivalents. It also had $50 million available under its credit facility.

2008 Outlook

The company expects fourth-quarter 2008 revenue to be negatively impacted by the strengthening U.S. dollar. The latest forecast calls for a range of $1.29 to $1.32 per Euro, down 16% from the prior forecast of $1.55. The dollar strength is expected to cut revenue by $12 million to $13 million, or 2 to 3 cents per share, in the quarter.

Given the currency exchange rate fluctuations, SYKE forecasts EPS for the fourth quarter in the range of 30 to 32 cents per share.

For the full-year, the range is expected to be $1.59 to $1.61 on revenue between $813 million to $818 million.

Full Year 2008 Consensus Estimates Rise

Given the company's guidance, covering analysts adjusted fourth-quarter estimates to the middle of the range. As a result, consensus estimates have fallen a penny to 31 cents in the last 30 days.

Similarly, consensus estimates jumped for the full year by 13.4% to $1.60 from $1.41 in the last month, which is now in line with the company's guidance.

Value Fundamentals

SYKES is a Zacks #1 Rank (strong buy) stock. It has surprised on estimates 4 consecutive quarters by an average of 40.34%.

SYKES has strong value credentials. It's trading with a forward P/E of 11.9. The company's price-to-book is 1.97. SYKE also has a solid 1-year return on equity [ROE] of 16.72%.