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Can Amdocs (DOX) Surprise This Earnings Season?

Zacks Equity Research

Amdocs Limited (DOX), a leading provider of customer experience systems and services, is slated to report second-quarter fiscal 2014 results after the closing bell on Apr 30, 2014.

In the previous quarter, the company’s earnings were in line with the Zacks consensus estimate. Let’s see how things are shaping up for this announcement.

Factors to Influence This Quarter

Amdocs’ business opportunity in the U.S. is more visible after stabilization of businesses with its major customer AT&T and renewal of long-term contracts with several leading telecom and cable TV operators. The company has also won significant managed service contracts in Europe despite the economic volatility in the region.

In Feb 2014, Amdocs launched the Self Optimizing Network (SON) software platform to optimize Radio Access Networks, enhancing customer experience. Management declared that the SON platform will be completely integrated into its existing OSS/BSS systems to efficiently monitor network issues. Moreover, the platform will help wireless operators lower operating expenditure, improve services to high-end customers and efficiently manage heterogeneous networks (such as a combination of Long-Term Evolution, small cell and WiFi network).

On the flip side, high customer concentration coupled with continuous consolidation in the U.S. telecom industry may act as headwinds going forward. Three major clients -- AT&T (T), Sprint (S) and BCE Inc. (BCE) -- together account for over 50% of the company’s total revenue. Loss of any of these customers will result in significant erosion of the top line.

Earnings Whispers

Our proven model does not conclusively show that Amdocs is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: This is because both the Most Accurate estimate and the Zacks Consensus Estimate are poised at 73 cents. This leads to an ESP of 0.00% for Amdocs.

Zacks Rank: Amdocs’ Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into an earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies to consider as our model shows these have the right combination of elements to post an earnings beat this quarter.

Level 3 Communications, Inc. (LVLT) with Earnings ESP of +10.71% and Zacks Rank #1 (Strong Buy).

EPAM Systems, Inc. (EPAM) with Earnings ESP of +2.94% and Zacks Rank #2 (Buy).

Fair Isaac Corp. (FICO) with Earnings ESP of +7.35% and Zacks Rank #3 (Hold).

Read the Full Research Report on DOX
Read the Full Research Report on EPAM
Read the Full Research Report on T
Read the Full Research Report on S
Read the Full Research Report on LVLT
Read the Full Research Report on BCE
Read the Full Research Report on FICO

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