Amdocs Remains Poised For Long-Term Growth Despite Risks

On May 22, we issued an updated research report on business software & services provider Amdocs Limited (NASDAQ:DOX) .

Formed in 1982, Amdocs is a leading provider of customer relationship management and billing software to communications service providers. Amdocs performed relatively well in the second quarter of fiscal 2017, with revenues improving on a year-over-year basis due to solid execution across multiple dimensions of its business and continuous project wins. GAAP earnings for the quarter also improved to $112.6 million or 76 cents a share from $107.7 million or 71 cents per share in the year-earlier quarter.

For fiscal 2017, Amdocs further updated its guidance on favorable growth dynamics and strength in the business model. The company expects revenues to be up 3–5% year over year compared with the earlier projection of a rise of 1.5–5.5%. The company remains on track to deliver non-GAAP earnings per share growth of 4.5–8.5%. This augurs well for the long-term growth of the company.

Amdocs continues to boost shareholders’ wealth by continuously repurchasing shares and paying regular dividends to its shareholders. Moreover, the company has increased its quarterly dividend by 12.8% to 22 cents per share. With a diligent execution of operational plans, Amdocs has outperformed the Zacks categorized IT Services industry in the last three months with an average return of 6.1% as against a 1.4% loss for the latter.

The company introduced a new digital customer management and commerce platform called Optima which can monetize any product or service and support 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. Moving forward, the innovative products are likely to boost the top-line in the coming quarters.

However, Amdocs is exposed to foreign currency exchange rate risk with significant international operations. The company is also 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 are likely to result in bottom-line shrinkage.

Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #2 (Buy) stock. Other stocks worth reckoning in the industry include EPAM Systems, Inc. (NYSE:EPAM) , CoStar Group, Inc. (NASDAQ:CSGP) and MAM Software Group, Inc. (NASDAQ:MAMS) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

EPAM has a long-term earnings growth expectation of 20%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 3.2%.

CoStar Group has a long-term earnings growth expectation of 17.5%. It surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 11.3%.

MAM Software surpassed estimates thrice in the trailing four quarters with an average positive earnings surprise of 92.9%.

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