Amdocs (DOX) Maintains Core Business Focus, Risks Remain

On Sep 22, we updated the research report on business software and services provider, Amdocs Limited (NASDAQ:DOX) .

Over the years, Amdocs has successfully combined its core billing and rating technology with customer relationship management software to emerge as a leader in the market of business support systems. With strategic acquisitions, the company has further evolved as a unique vendor providing both end-to-end business support solutions and operating support solutions to the carrier marketplace.

Amdocs continues to expand its global client base by signing long-term contracts and collaborating with major telecommunication industry players worldwide. The company struck a three-year deal with Roger Communication to enhance operating efficiency of mobile, cable, wireline and broadband Internet services. In addition, Amdocs has signed a deal with AT&T (NYSE:T), per which it will operate as an integrator for developers and telecom firms interested in using AT&T’s ECOMP (Enhanced Control, Orchestration, Management & Policy) service. Amdocs will assist AT&T in marketing this service worldwide. The company has also been selected by companies such as Telefonica (MC:TEF) Brazil for its Vivo operations, Global Telecom of Philippines for automated and analytics-driven revenue assurance services, and by Global Fintech's subsidiary Mynt for its financial services offering.

Amdocs has introduced a new digital customer management and commerce platform called Optima, which can monetize any product or service and supports the full business lifecycle. The product mainly targets midsized communication businesses and digital firms. Seaborne Networks, which develops and operates submarine fiber optic cable systems, has selected Optima in a seven-year managed services contract. The company also launched Amdocs Omni-Channel Experience integrated with Google’s mobile data application program interface. The new products are expected to boost the company's top line.

With a diligent execution of operational plans, the company remains on track to deliver non-GAAP fiscal 2017 earnings per share growth of 5.5% to 7.5%. Amdocs also expects revenues to be up 3-5% year over year.

However, Amdocs is highly exposed to foreign currency exchange rate risk. The company saw a sharp decline in revenues from Europe and international markets in the last reported quarter. Economic and political uncertainty in Europe may further jeopardize the company’s financials, going forward. Amdocs has underperformed the industry with an average year-to-date return of 9.3% compared with 25.2% gain for the latter.

Moreover, Amdocs is investing heavily in the emerging markets in order to boost sales, which may lead to a drop in margins. Even in the developed markets, management has decided to undertake a series of programs including training, knowledge transfer and productivity enhancement to cope with recessionary situations. All these activities will likely result in bottom-line shrinkage.

Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. Better-ranked stocks in the industry include CoStar Group, Inc. (NASDAQ:CSGP) , Infosys Limited (NYSE:INFY) and Nutanix, Inc. (NASDAQ:NTNX) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CoStar Group has a long-term earnings growth expectation of 15%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 15.4%.

Infosys has a long-term earnings growth expectation of 10.4%. It topped earnings estimates twice in the trailing four quarters with a positive surprise of 2.2%.

Nutanix has a long-term earnings growth expectation of 20%. It topped earnings estimates in all the trailing four quarters with a positive surprise of 12.9%.

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