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Amdocs Limited DOX is one stock investors should consider adding to their portfolio to shrug off the prevailing highly volatile market environment and make some gains from its upside potential.
Since the start of 2022, Wall Street has been witnessing high volatility due to several ongoing economic tensions, including the outbreak of new COVID-19 variants, skyrocketing crude oil prices, rising inflationary pressure and a shift in Fed’s policy to a tougher-than-expected line. The ongoing Russia-Ukraine conflict remains a key concern among potential investors.
Such geopolitical uncertainties are likely to continue weighing on investors’ sentiments, which might lead to higher volatility in the U.S. equity market. Year to date (“YTD”), the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 have plunged 17.8%, 31% and 22.9%, respectively.
In such a scenario, top-ranked stocks like Amdocs can boost one’s portfolio. DOX’s price trend reflects that the stock has an impressive run on the bourse YTD. Shares of the company have climbed 4.6% YTD against the Zacks Computers – IT Services industry’s decline of 33.4%.
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Why is DOX an Attractive Pick?
Attractive Valuation: Amdocs currently trades at an attractive valuation multiple. The stock trades at a one-year forward price-to-earnings multiple of 13.79X compared with its five-year average of 15.85X.
Solid Rank & VGM Score: Amdocs currently has a Zacks Rank #2 (Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities to investors. Thus, the company appears to be a compelling investment proposition at the moment.
Positive Earnings Surprise History: DOX has an impressive earnings surprise history. The company outpaced estimates in three of the trailing four quarters and missed once, the average surprise being 9.4%.
Strong Earnings Growth Potential: The Zacks Consensus Estimate of $5.25 per share for fiscal 2022 earnings suggests year-over-year growth of approximately 9.2%. The consensus mark for fiscal 2023 earnings indicates a year-over-year surge of 11.4% and is pegged at $5.85 per share. The long-term expected earnings growth rate for the stock is pegged at 10%.
Robust Fundamental Growth Drivers: Amdocs is benefiting from the recurring revenue business model at present. Its growth momentum is expected to continue due to its initiatives aimed at aiding digital, media, network and cloud transformations of its clients. However, foreign currency headwinds, pandemic disruptions and stiff competition remain major concerns.
Amdocs continues to gain from well-timed acquisitions, which complement its original business line. In May 2021, the company acquired a technology consultancy firm, Sourced Group, to strengthen its capabilities to aid the cloud transformation of service provider customers. In August 2020, it acquired Openet to expand the reach of its managed services business and maximize opportunities for service providers during the 5G adoption uptrend. Such buyouts are expected to drive Amdocs’ long-term growth.
Besides, Amdocs is expanding its global client base by signing long-term contracts and collaborating with major telecom industry players worldwide. It is winning important deals like the one with Veon and a Tier 1 service provider in Spain. These aid Amdocs in driving its top line. Extension of managed services agreements with several customers, including Vodafone Hungary, and partnerships with Capita plc to provide digital business systems are tailwinds.
Other Stocks to Consider
Some other top-ranked stocks from the broader Computer and Technology sector are Analog Devices ADI, Baidu BIDU and Axcelis Technologies ACLS. While Analog Devices and Baidu each sport a Zacks Rank #1, Axcelis carries a Zacks Rank of 2. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Analog Devices' third-quarter fiscal 2022 earnings has been revised upward by 5 cents to $2.42 per share over the past 30 days. For fiscal 2022, earnings estimates have moved 16 cents north to $9.24 per share in the past 30 days.
Analog Devices' earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 7.7%. Shares of ADI have decreased 11.9% in the past year.
The Zacks Consensus Estimate for Baidu’s second-quarter 2022 earnings has been revised 31 cents southward to $1.38 per share over the past 30 days. For 2022, earnings estimates have moved 3 cents north to $8.27 per share in the past 30 days.
Baidu's earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 52.9%. Shares of BIDU have dipped 24.6% in the past year.
The Zacks Consensus Estimate for Axcelis’ second-quarter fiscal 2022 earnings has been revised 3 cents northward to 99 cents per share over the past 60 days. For 2022, earnings estimates have moved 10.3% north to $4.40 per share in the past 60 days.
Axcelis' earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 23.5%. Shares of ACLS have surged 36.3% in the past year.
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