Amdocs Stays Neutral

Amdocs Ltd. ( DOX - Analyst Report ) posted mixed financial results for the third quarter of fiscal 2012, beating the Zacks Consensus Estimates. Management provided an improved financial outlook for the rest of fiscal 2012.

Amdocs offers a portfolio of several industry-leading technology integration products for managed services and large transformational project. Despite facing a volatile global economy, the company is successfully executing its operations across geographies. Going forward, it is expected that the company will benefit as telecom carriers have started deploying 3G and 4G networks.

Moreover, Amdocs provides a full suite of end-to-end solutions for both Business Support Systems (BSS) and Operations Support Systems (OSS). Recently, Amdocs signed its first major managed services deal in Latin America with TIM Brasil. Further, Amdocs has also signed an important new managed services contract with a large wireless operator in Europe.

Other than telecom, Amdocs has a strong foothold in the cable TV industry as well. In a significant contract win, Amdocs recently extended its existing business agreement with Comcast Corp. ( CMCSA - Analyst Report ) , the largest cable Multi Service Operator (MSO) in the U.S.

The extension period is for a multi-year period, during which Amdocs will supply various products from its CES platform. Furthermore, the company has extended its existing deal with DIRECTV ( DTV - Analyst Report ) , the largest satellite TV operator in the U.S., for another 5 years for several additional activities.

One of the main drawbacks of Amdocs is its ongoing business fluctuations with its largest customer AT&T Inc. ( T - Analyst Report ) . AT&T has either terminated or postponed several transformational deals with Amdocs, after its failed attempt to acquire T-Mobile USA. AT&T accounts for about 27% of the company’s total revenue.

For fiscal 2012, management expects revenue from AT&T to be down by mid-single digits. The company may face severe top-line volatility if it fails to restore its previous revenue run rate with AT&T.

In an effort to boost sales, which may result in a drop in margins, Amdocs is investing heavily in the emerging markets. Even in the developed markets, management has decided to undertake a series of programs including training, knowledge transfer and productivity enhancement in order to cope up with recessionary situations. All these activities will result in bottom-line shrinkage that may continue in fiscal 2012.

Recommendation:

We maintain our long-term Neutral recommendation on Amdocs. Currently, the shares of DOX have a Zacks #3 Rank, implying a short-term Hold rating.