A month has gone by since the last earnings report for Amdocs (DOX). Shares have added about 2.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Amdocs due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Amdocs Reports Q3 Results
Amdocs reported third-quarter fiscal 2019 results, wherein the top line narrowly missed estimates but the bottom line beat the same.
Quarterly non-GAAP earnings came in at $1.19 per share, up from $1.03 in the year-ago quarter. The bottom line also beat the Zacks Consensus Estimate of $1.11. The figure came above the company’s guided range of $1.08 to $1.14 per share.
Revenues for the reported quarter came in at $1.024 billion, marginally missing the consensus estimate of $1.03 billion but improving 2.2% year over year. The top line also came within the company’s guided the range of $1.005-$1.045 billion.
Continued flow of new customers, strong project execution and strong growth in managed services drove revenues. However, a negative impact of nearly $3 million year over year in foreign currency movements was a headwind.
Notably, Amdocs announced the acquisition of TTS Wireless to strengthen its capabilities in open cloud and 5G network.
Region wise, revenues from North America (62.2% of total revenues) were $634.2 million, up 1.6% from the year-ago quarter driven by digital modernization requirements of many of Amdocs’ communications, Pay TV and media customers. Europe (14.8%) recorded revenues of $151 million, up 1.6%. Rest of the World (13%) generated revenues of $234.5 million, up 6.8%.
The North America region witnessed sequential revenue growth, driven by stable activity trends at AT&T and healthy activity levels at many customers in the border region.
Strong growth in Amdocs’ managed services business was driven by the continued ramp up of managed transformation activities for customers like PLDT and Infineon. It is combining the deployment of large-scale data transformation projects with operational benefits of its managed services model.
Moreover, strong traction was seen at Amdocs Media where the company continued the integration of media assets to meet the rapidly evolving content monetization needs of traditional service providers and media studios. Along this line, Amdocs signed a managed service agreement for distribution of 3D video-on-demand services for new logo.
During the quarter, Amdocs worked with T-Mobile and Sprint, assuming the planned merger proceeds.
The company incurred non-GAAP operating expenses of $847.4 million, up 2.3% from the year-ago quarter.
Non-GAAP operating income increased 2.1% to $177.3 million.
Balance Sheet & Cash Flow
During the fiscal third quarter, the company repurchased shares worth $89 million. Also, its board of directors recently approved the payment of a quarterly dividend of $0.285 per share. The dividend will be paid out on Oct 25, 2019.
For fourth-quarter fiscal 2019, Amdocs expects revenues in the range of $1.015-$1.055 billion, assuming approximately $2 million sequential positive impact from foreign currency fluctuations, and a partial quarter revenue contribution from the TTS Wireless buyout.
Non-GAAP earnings per share in the band of $1.04 to $1.10 are expected for the fiscal fourth quarter. No impact of the acquisition of TTS Wireless on Amdocs’ non-GAAP earnings is expected in the quarter.
For fiscal 2019, the company raised its revenue guidance on a reported basis. It now expects revenues to grow 2.4-3.4% year over year compared with 1.8-3.8% rise expected earlier.
Amdocs also revised its revenue guidance on a constant currency basis. It expects revenue growth between 3.6% and 4.6% compared with 3-5% projected earlier. This guidance takes into account 1.2% year-over-year negative impact of foreign exchange fluctuations.
The company now expects non-GAAP earnings per share growth of 6.2-7.8% year over year, up from the earlier guided range of 4.5-8.5% rise.
Favorable market dynamics are resulting in healthy customer activity in North America. This is likely to partially offset the declining revenues from AT&T, which is likely to deliver modest revenue growth in North America for the full fiscal year 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
Currently, Amdocs has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Amdocs has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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