UBS Thinks Amdocs Takeover Hopes May Be Unjustified

Amdocs (DOX) shares were lower Monday morning after UBS analyst Jason Kupferberg picked up coverage of the company with a Neutral rating. He writes that the company has a “very strong competitive position” in telecom billing systems, but that the stock lacks near-term catalysts and offers a”non-compelling” 5.6% free cash flow yield.

Kupferberg says the company has limited success trying to diversify away from its core telecom market.

He notes that at first glance the company’s balance sheet and cash flows make it appear to be a viable LBO candidate, but he asserts that a 20% premium would generate an IRR of only 2%, “which would seem to dampen private equity interest.” Kupferberg says he views market speculation regarding a possible takeout of DOX by SAP (SAP) as unlikely, since it would be dilutive to SAP’s margins.

He has a $44 price target on the stock.

DOX 1-yr chart: