Amdocs: Time To Play Catch-Up

Sep. 15, 2020 9:28 AM ETAmdocs Limited (DOX)IGV, T, TMUS7 Comments
Michael Fitzsimmons profile picture
Michael Fitzsimmons
19.55K Followers

Summary

  • Amdocs has greatly underperformed the software sector and even the S&P 500.
  • Yet the billing software company is a slow and steady performer that has 17% margins and generates significant FCF.
  • The current P/E=16 and is considerably below the market average. The recent quarterly dividend was up 14.9% yoy.
  • The company could deliver 25% total returns over the next 12 months.

Amdocs (NASDAQ:DOX) is primarily a provider of billing and customer-care software to wireless companies, cable service providers, and media businesses. The stock has been a severe laggard in the IT sector over the past year and has underperformed the iShares Expanded Tech-Software ETF (IGV) by ~50%. DOX even trails the S&P 500 by ~25%:

Source: Seeking Alpha Charting Tool

By those statistics alone, investors might conclude that Amdocs is not performing very well. Let's take a look at DOX's financial performance and see if it reflects the weak stock price.

Earnings

Amdocs released its Q3 EPS report (for the calendar Q2 period) on August 5th. Highlights include:

Source: Q3 EPS Report

As can be seen from the graphic above, DOX's last-nine-months revenue rose only 2% as compared to the year earlier period. Yet with a good handle on expenses and an outstanding share count that shrunk almost 3%, nine-month EPS was up 4.7% and the Q3 quarterly dividend ($0.3275/share) was up 14.9% yoy. But note that FCF/share (see below) was $1.08/share in the quarter - over 3x the current quarterly dividend.

Quarterly highlights included:

  • Revenue exceeded the midpoint of guidance even after adjusting for a positive FX adjustment.
  • Managed services revenue (59% of total revenue) was a record $604 million - up 4.6% yoy.
  • GAAP and non-GAAP EPS was above the midpoint of guidance.
  • Operating margin was 14.4%.
  • Quarterly free-cash-flow ("FCF") was $146 million ($1.08/share).
  • Cash and cash equivalents were $1.19 billion at the end of the quarter (an estimated $8.83/share).
  • The 12-month backlog was $3.48 billion - up $20 million sequentially and up 2.4% as compared to Q3FY19.
  • Repurchased $60 million of common shares during the quarter.

Shuky Sheffer, president and CEO of Amdocs said:

Our fiscal Q3 was our first full quarter operating under the global conditions

This article was written by

Michael Fitzsimmons profile picture
19.55K Followers
Technology stocks, ETFs, portfolio strategy, renewable energy, and O&G companies. Primary goal is growing net-worth. I typically allocate a portion of my own portfolio and devote some of my SA articles to small and medium sized companies offering compelling risk/reward propositions. I am an Electronics Engineer, not a qualified investment advisor. While the information and data presented in my articles are obtained from company documents and/or sources believed to be reliable, they have not been independently verified. Therefore, I cannot guarantee its accuracy. I advise investors conduct their own research and due-diligence and to consult a qualified investment advisor. I explicitly disclaim any liability that may arise from investment decisions you make based on my articles. Thanks for reading and I wish you much investment success!

Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am an engineer, not a CFA. The information and data presented in this article were obtained from company documents and/or sources believed to be reliable, but have not been independently verified. Therefore, the author cannot guarantee their accuracy. Please do your own research and contact a qualified investment advisor. I am not responsible for the investment decisions you make.

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