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Bear Of The Day: CSG Systems (CSGS)

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CSG Systems (CSGS - Free Report) is a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day today.  Let's take a look at why this stock slipped to the lowest Zacks Rank and decide if now is a good time to think about adding it to your portfolio.

First thing I see is that it has a set of A's for the Zacks Style Scores, and that is always good to see.  There is an A for Growth, Value and Momentum.  This means it could be right for a lot of investors.

Description

CSG Systems International, Inc. provides business support solutions primarily to the communications industry. The company offers revenue management and digital monetization solutions, including Advanced Convergent Platform, a cloud-based platform; and Ascendon, Singleview, Total Service Mediation, and Wholesale Business Management Solution platforms.The company was founded in 1994 and is headquartered in Greenwood Village, Colorado.

Recent Earnings

As much as I want to highlight the most recent quarter, it should be also noted that the 3 quarter before the most recent one were all beats.  Solid beats too, with an average positive earnings surprise of about 15%.

The most recent quarter, however, was a miss.  THe company posted EPS of 50 cents when the Zacks Consensus Estimate was calling for 71 cents.  That 12 cent difference translates intoa  -17% negative earnings surprise.

Estimate Revisions

Following the miss, estimates have moved lower.

Thing is, they haven't moved lower by that much.  

This quarter is staying strong at 79 cents and next quarter acutally saw an increase of a penny.

The Zacks Rank cares more about the full year numbers and when you put the miss into your model that will bring down annual numbers.  I see this year moving from $3.07 to $3.02.

Next year slipped a penny, so the move is not that dramatic.

Valuation

I like the valuation here, wiht a 13x forward earnings multiple and only some small topline contraction.  The price to book multiple of 3.5x is a little rich for the value investing crowd, but it is not a super lofty number either.  The price to sales multiple of 1.4x is acceptable given the margin profile of about 10% on an operating basis.

This is a stock that will stay on my radar screen.

Chart

 

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