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Amdocs (DOX) Down 1.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
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A month has gone by since the last earnings report for Amdocs (DOX). Shares have lost about 1.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Amdocs due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Amdocs reported third-quarter fiscal 2018 non-GAAP earnings of $1.03 per share which matched the Zacks Consensus Estimate and was higher than the year-ago quarter figure of $1.02.

Revenues in the reported quarter came in at $1.002 billion, 3.7% higher than the year-ago figure. This is the first time that the company’s quarterly revenues exceeded the $1 billion mark. However, it was slightly below the Zacks Consensus Estimate of $1.008 billion.
 
Quarter Details

Customer Experience Solutions revenues were up 3.8% and reached $991 million in the reported quarter. Customer Experience Directory revenues were down nearly 6% year over year to $11.2 million.

Geographically, revenues from North America (64% of total) were $644.8 million, up 1.2% from the year-ago quarter. Europe (14%) recorded revenues of $139.3 million, up 11.3%.

Rest of the World (22%) generated revenues of $218.1 million, up 7.1%, driven by growth in Asia and other surrounding regions.

Recently achieved customer awards and the company’s focus on project delivery and execution translated into healthy year-over-year growth in Europe and the Rest of the World, and improved revenues from North America.

Management is optimistic about the double-digit growth in the contribution of European revenues and the 12-month backlog that reached $3.33 billion at the end of the quarter.

Increasing investments in network function virtualization (NFV) and Pay TV and further digital modernization are tailwinds for Amdocs.
 
Management is extremely bullish about the company’s recent partnership with Comcast Business to help drive software defined wide area networks (SD-WAN) service.

The acquisitions of Vubiquity and UXP Systems have helped it enrich its offerings and cater to a larger market. Notably, the company won the Vubiquity managed services contract with Verizon.

Margins and Operating Metrics

The company reported non-GAAP operating expenses of $828.6 million, up 3.6% from the year-ago quarter. Non-GAAP operating income increased 3.8% and came in at $173.6 million. Operating margin of 17.3% remained flat year over year.

Balance Sheet & Cash Flow

As of Jun 30, 2018, Amdocs had cash, cash equivalents and short-term interest-bearing investments of $561 million compared with $666.8 million recorded in the prior quarter.

In the first nine months of fiscal 2018, the company generated net cash of $441.9 million from its operating activities compared with $437.1 million in the year-ago period.

During the reported quarter, the company repurchased shares worth $90 million. Also, its board of directors approved the payment of a quarterly dividend of 25 cents per share.

Outlook

Amdocs expects revenues in the range of $980-$1,020 million and adjusted earnings per share in the range of $0.95-$1.01 in fourth-quarter fiscal 2018.

The company reduced its revenue growth view for fiscal 2018. It now expects revenues to grow 2.2-3.2% year over year, down from the previous expectation of 2.3-4.3% growth. This guidance takes into account the impact of foreign exchange fluctuations.  Moreover, management anticipates revenue from AT&T to decline in a double-digit rate in fiscal 2018. Directory is also expected to remain a drag in the full year.

Fiscal 2018 earnings growth expectations were also revised at 5-7% compared with the previously projected range of 4-8%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Amdocs has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Amdocs has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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