iGATE Corporation (IGTE) discussed its Q3 2013 results yesterday. With a market cap of under $2Billion, iGATE is an IT Services company whose stock has shown a 1-year performance of over 70% and risen 700% in the last five years. The chart to the left shows the stock's performance relative to its peers. iGATE Corp. provides outsourced information technology and IT-enabled operations solutions and services. Its IT services range from application development to infrastructure management services and embedded systems development. iGATE serves various industries, including insurance and healthcare, manufacturing, utilities, life sciences, and product engineering. The company has operations in India, Canada, the United States, Europe, Mexico, Singapore, Malaysia, Japan, Australia, the United Arab Emirates, South Africa, China, Switzerland, Mauritius, and the United Kingdom. iGATE was founded in 1986 and is headquartered in Fremont, CA. News about the company and its peers is available here.
Based on the company's preliminary financial results for the quarter ended 2013-09-30 we provide a peer-based earnings analysis of the company (see the end of this post for the peer list). Our analysis is based on the company's performance over the last twelve months (unless stated otherwise). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
|Quarterly (USD million)||2013-09-30||2013-06-30||2013-03-31||2012-12-31||2012-09-30|
|Revenue Growth %||3.6||3.0||1.2||0.2||1.2|
|Net Income Growth %||6.4||(13.8)||12.8||9.0||124.6|
|Net Margin %||10.8||10.5||12.6||11.3||10.4|
|ROE % (Annualized)||389.5||112.1||117.9||116.7||230.8|
|ROA % (Annualized)||8.0||6.9||7.4||6.5||6.2|
Margin Driven Operating Model
iGATE Corporation's current Price/Book of 72.8 is about average in its peer group. IGTE achieved a better operating performance than the average of its chosen peers (ROE of 218.3% compared to the average ROE of 15.5%) and the market still expects faster growth from it than from those peers (PE of 21.3 compared to peer average of 17.7).
The company's relatively high profit margins (currently 11.3% vs. peer average of 5.8%) are burdened by asset inefficiency with asset turns of 0.6x compared to the peer average of 1.3x. Overall, this suggests a margin driven operating model relative to its peers. IGTE's net margin continues to trend upward but is still within one standard deviation below its five-year average net margin of 12.4%.
Superior Growth Prospects
IGTE has grown its revenues faster than its peers (77.2% vs. 15.5% respectively for the past three years). The market also sees relatively higher long-term growth prospects for the company, giving it a better than peer average PE ratio of 21.3. Overall, we classify the company's growth prospects as superior relative to its peers.
IGTE's annualized rate of change in capital of 102.6% over the past three years is greater than the average of 8.5%. However, this investment level has only generated a peer average return on capital of 12.4% averaged over the same three years. This average return on an above average capital investment suggests the company is overinvesting.
iGATE Corporation has reported relatively strong net income margin for the last twelve months (11.3% vs. peer average of 5.8%). This strong margin performance was accompanied by a level of accruals that was around peer average (-0.4% vs. peer average of -0.4%) suggesting that the reported net income is supported by a reasonable level of accruals.
IGTE's accruals over the last twelve months are around zero. This level is also around the peer average suggesting a proper level of reserves.
iGATE Corporation Trend Charts
We used the following peer set for our earnings analysis of iGATE Corporation: Computer Sciences Corporation (CSC), Harman International Industries, Incorporated (HAR), Syntel, incorporated (SYNT), Sapient Corporation (SAPE), Computer Task Group, Incorporated (CTG) and Toa Corporation (TOKYO:6809).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.