It has been about a month since the last earnings report for Amdocs (DOX - Free Report) . Shares have lost about 1.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Amdocs due for a breakout? 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 Tops Q3 Earnings & Revenue Estimates, Ups View
Amdocs reported third-quarter fiscal 2020 non-GAAP earnings of $1.07 per share that beat the Zacks Consensus Estimate by 1.9%. However, the figure declined 10.1% year over year.
Revenues of $1.03 billion also surpassed the consensus mark by 1.6% and were up 0.1% year over year. At constant currency (cc), revenues increased 1%.
Amdocs won a number of deals in the quarter under review including an agreement to support Bell Canada’s cloud-native strategy, an enterprise digital-transformation project in the Philippines and a contract from Three UK.
North America revenues (66.8% of total revenues) grew 6.5% year over year to $685.9 million in the reported quarter.
However, Europe revenues (14.2% of total revenues) of $145.4 million were unchanged at $145.4 million. Rest of the World revenues (19% of total revenues) declined 17.2% year over year to $194.9 million.
Managed services revenues (58.9% of total revenues) climbed 4.6% year over year to $604.5 million.
The company ended the quarter with a 12-month backlog of $3.48 billion, up 2.4% year over year.
Meanwhile, research & development expenses, as a percentage of revenues, increased 10 basis points (bps) on a year-over-year basis to 6.8%.
However, selling, general & administrative expenses, as a percentage of revenues, decreased 170 bps year over year to 10.2%.
Operating margin contracted 20 bps year over year to 17.1%.
Balance Sheet and Cash Flow
Amdocs had cash and cash equivalents of $1.19 billion as of Jun, 2020, up from $763 million on Mar 31, 2020.
Cash flow from operating activities was $186.7 million, up from $103 million recorded in the previous quarter and $164.5 million in the year-ago quarter.
Free cash flow was $145.4 million compared with previous quarter’s $57 million and $128.6 million reported in the year-ago quarter.
During the fiscal third quarter, the company repurchased shares worth $60 million. Amdocs’ board of directors approved the payment of a quarterly dividend of $0.3275 per share. The dividends will be paid out on Oct 23.
Amdocs announced the acquisition of Openet. The deal is valued at $180 million and is expected to be closed by the end of fiscal 2020.
The acquisition is expected to be neutral to fiscal 2020 and 2021 earnings per share but accretive from fiscal 2022 onward.
For the fourth quarter of fiscal 2020, revenues are expected between $1.015 billion and $1.055 billion.
Non-GAAP earnings are projected at $1.16-$1.22 per share.
Amdocs expects fiscal 2020 revenues to grow between 1.1% and 2.1% year over year, higher than previous guidance of down 0.5% to up 2.5%. At cc, revenues are expected to grow in the 1.6-2.6% range. TTS Wireless is expected to contribute a little more than 1%.
Adjusted earnings are estimated to grow between 1.6% and 3%, better than previous guidance of flat to up 4%.
The company expects free cash flow to be roughly $420 million compared with the previous guidance of $400 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
At this time, 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 second quintile 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, Amdocs has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.