We reiterate our Neutral recommendation on Acxiom Corporation (ACXM). The company’s continuous contract wins and incipient buy-back activities are likely to partially neutralize the effects of the weak economic condition and tough competition prevailing in the industry.
The company’s diversified product offerings such as AbiliTec Digital, InfoBase-X, Customer Data Integration (CDI) services and customer recognition software provide a competitive edge in this industry, which includes big players such as Fair Issac Corp. (FICO), Camelot Information Systems Inc. (CIS), and CoStar Group Inc. (CSGP).
The company has taken several strategic initiatives to improve its core competency areas through heavy investments and product launches, which are perceived to be its key growth drivers. The company’s recent prestigious contract win from Mindshare and its association with Yahoo!7 are expected to boost business going forward.
The company is continuously expanding its operations across many regions including Brazil, South Korea and Norway for enhancing its long-term margins. Going forward, it is likely to be highly benefited by the well-diversified business portfolio in terms of geographies, products and markets.
Acxiom repurchased a total of 2.4 million shares worth $33 million during the first quarter of fiscal 2013. Additionally, since August, 2011, it bought back 8.1 million shares worth approximately $100 million. The buying back of common shares is likely to be one of the best strategic moves, which will help enhance investor confidence.
Although Acxiom’s intent and advances towards meeting long-term goals are impressive, we are, however, concerned about the overall economic turmoil and inflationary pressures, which might have detrimental effects on the company. As the company earned a huge portion of revenue from the financial sector, the current slowdown in the financial services is expected to adversely impact its overall performances.
Acxiom highly depends on its AbiliTec software technology. Consequently, the company has to advance its technological services in order to compete in the industry, which appears to be costly.
We observed quite a few changes in Acxiom’s top-level management. Such management shifts may have a pervasive impact on the company’s overall functioning. It takes time for a company to stabilize after such important changes and, therefore, it would be advisable for investors at this point not to purchase its shares before assessing the performance of the company.
The company projects earnings per share (EPS) to lie within a range of 60 cents - 65 cents bearing onuses of product innovation strategies for the upcoming fiscal 2013. The company also anticipates that its revenue from continuing operations will either remain flat or decline marginally during the fiscal 2013. Revenues are also projected to be down by 5% in the second quarter of fiscal 2013 owing to the low yields in Acxiom’s IT Infrastructure Management and Other Services segments.
Hence, until the situation improves, we consider it wise to remain on the sidelines. In the short run, the stock bears a Zacks #2 Rank, which translates, into a short-term ‘Buy’ rating.
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