Sykes Enterprises: Overreaction To Short Term Setback Provides Attractive Entry Point
John Leonard, CFA • Thu, Sep. 25
- The stock fell back into a narrow trading range after management lowered FY14 revenue and EPS guidance as regulatory changes in a client's market resulted in lower demand.
- This is an overreaction as this client only represented ~3% of revenue and this lost revenue could be replaced within six months.
- The 6.2x EBITDA multiple (at least 1x turn lower than its peers) more than prices in this short term pressure and provides a margin of safety.
- The 8-10% operating margin target is still on track to be achieved over the next two years due to continued utilization increases, facility rationalization and productivity improvements.
- The strong cash flow is being used to delever (following a key bolt-on acquisition) and fund the existing five million share buyback program.