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Why Is Amdocs (DOX) Up 6.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Amdocs (DOX - Free Report) . Shares have added about 6.5% 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 drivers.

Amdocs Q4 Earnings Beat Estimates, Revenues Up Y/Y

Amdocs Limited reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.23 per share that beat the Zacks Consensus Estimate by 3.4% and increased 13.9% year over year.

Revenues of $1.05 billion also surpassed the consensus mark by 1.8% and were up 2.2% year over year. At constant currency (cc), revenues increased 1.8%.

Quarterly Details

North America revenues (64.7% of total revenues) grew 5.8% year over year to $681.6 million in the reported quarter. Moreover, Europe revenues (15.7% of total revenues) of $165.3 million increased 5.9% year over year.

However, Rest of the World revenues (19.6% of total revenues) declined 10.4% year over year to $206 million.

Managed services revenues (58% of total revenues) climbed 4.7% year over year to $610.5 million.

The company ended the quarter with a 12-month backlog of $3.62 billion, up 3.7% year over year.

Meanwhile, research & development expenses as percentage of revenues increased 40 basis points (bps) on a year-over-year basis to 7.1%.

However, selling, general & administrative expenses as percentage of revenues decreased 220 bps year over year to 9.7%.

Operating margin contracted 10 bps year over year to 17.2%.

Balance Sheet and Cash Flow

Amdocs had cash and cash equivalents of $983.9 million as of Sep 30, 2020, up from $1.19 billion on Jun 30, 2020.

Cash flow from operating activities was $204.7 million, up from $186.7 million recorded in the previous quarter and $213.6 million in the year-ago quarter.

Free cash flow was $145.1 million compared with the previous quarter’s $145.4 million and $179.3 million reported in the year-ago quarter.

During fiscal fourth quarter, the company repurchased shares worth $91 million. Amdocs’ board of directors approved the payment of a quarterly dividend of $0.3275 per share. The dividends will be paid out on Jan 22, 2021.

Amdocs’ board also approved a 10% increase in quarterly cash dividend payment to 36 cents per share.

Key Developments

Amdocs completed the acquisition of Openet during the reported quarter. The company also won a contract from AT&T which selected Openet’s 5G solution to quickly launch and monetize new 5G services on the cloud.

Moreover, it signed a new multi-year strategic agreement with Amazon’s cloud arm AWS to bring its cloud-native BSS offerings and wide range of services to jointly address the rapidly growing cloud market.

Moreover, Amdocs announced the divestiture of OpenMarket for approximately $300 million cash with Infobip.

Guidance

For the first quarter of fiscal 2021, revenues are expected between $1.055 billion and $1.095 billion.

Non-GAAP earnings are projected to be $1.09-$1.15 per share.

Amdocs expects fiscal 2021 revenues to grow between 4% and 8% year over year. At cc, revenues are expected to grow in the 3.5-7.5% range. Openet is expected to contribute 1.5% growth, while favorable forex is likely to add 0.5%.

Adjusted earnings are estimated to grow between 5% and 9%.

The company expects free cash flow to be roughly $470 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Amdocs has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Amdocs has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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