On Aug 18, 2016, Zacks Investment Research downgraded DST Systems Inc. to a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies holding a Zacks Rank #5 are likely to underperform the broader market.
Why the Downgrade?
There have been frequent downward estimate revisions of late. In fact, the Zacks Consensus Estimate for the current quarter dropped 15.9% to $1.48 per share over the last 60 days. For fiscal 2017, one out of the two estimates was lowered over the same time frame. The Zacks Consensus Estimate was down approximately 11.1% to $6.78 per share.
Moreover, DST Systems’ balance sheet appears highly leveraged. The company exited second-quarter 2016 with $72.7 million in cash and equivalents compared with $73.4 million in the previous quarter. Long-term debt (including current portion) was $712.2 million compared with $721.5 million in the previous quarter.
It is worth mentioning that DST has divested its Customer Communications division to focus on financial services and health care segments. During the second quarter, the company successfully sold its North American Customer Communications division to Broadridge Financial Solutions (BR - Free Report) for a cash consideration of $410 million. It has also divested its UK Customer Communications Bristol production facilities in exchange for net pretax proceeds of approximately $16 million. The proceeds from the aforementioned divestments will facilitate the acquisition of new businesses in addition to improving flexibility to capitalize on new opportunities in health care and financial services. However, all of this depends how the company utilizes these funds to drive future growth. Furthermore, loss of revenues due to divestments has made us increasingly cautious about the stock’s future performance.
The company faces stiff competition from the likes of Broadridge Financial Solutions' BEA, Lombardi, Savvion, and TIBCO Software, which offer their premium services at more competitive prices. Some of the company’s clients are in a position to develop in-house capacity to perform transaction processing, recordkeeping and output generation services. In-house facilities of these companies could increase competition, leading to lower prices and profits for DST.
Furthermore, decreasing organic revenue growth, tough competition from International Business Machines Corporation (IBM - Free Report) and Fiserv Inc. , and a high debt burden remain concerns.
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Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
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On Aug 18, 2016, Zacks Investment Research downgraded DST Systems Inc. to a Zacks Rank #5 (Strong Sell). Going by the Zacks model, companies holding a Zacks Rank #5 are likely to underperform the broader market.
Why the Downgrade?
There have been frequent downward estimate revisions of late. In fact, the Zacks Consensus Estimate for the current quarter dropped 15.9% to $1.48 per share over the last 60 days. For fiscal 2017, one out of the two estimates was lowered over the same time frame. The Zacks Consensus Estimate was down approximately 11.1% to $6.78 per share.
Moreover, DST Systems’ balance sheet appears highly leveraged. The company exited second-quarter 2016 with $72.7 million in cash and equivalents compared with $73.4 million in the previous quarter. Long-term debt (including current portion) was $712.2 million compared with $721.5 million in the previous quarter.
It is worth mentioning that DST has divested its Customer Communications division to focus on financial services and health care segments. During the second quarter, the company successfully sold its North American Customer Communications division to Broadridge Financial Solutions (BR - Free Report) for a cash consideration of $410 million. It has also divested its UK Customer Communications Bristol production facilities in exchange for net pretax proceeds of approximately $16 million. The proceeds from the aforementioned divestments will facilitate the acquisition of new businesses in addition to improving flexibility to capitalize on new opportunities in health care and financial services. However, all of this depends how the company utilizes these funds to drive future growth. Furthermore, loss of revenues due to divestments has made us increasingly cautious about the stock’s future performance.
The company faces stiff competition from the likes of Broadridge Financial Solutions' BEA, Lombardi, Savvion, and TIBCO Software, which offer their premium services at more competitive prices. Some of the company’s clients are in a position to develop in-house capacity to perform transaction processing, recordkeeping and output generation services. In-house facilities of these companies could increase competition, leading to lower prices and profits for DST.
Furthermore, decreasing organic revenue growth, tough competition from International Business Machines Corporation (IBM - Free Report) and Fiserv Inc. , and a high debt burden remain concerns.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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