Amdocs Upgraded to Neutral - Analyst Blog

We upgrade our recommendation for Amdocs Ltd. (DOX) to Neutral following our assumption that an improving global economy will revive the Telecommunications Software Management Systems market.

Amdocs has several industry-leading technology integration products for managed services and large transformational projects. We believe the long-term fundamentals of Amdocs remain firm due to the transition of telecom service providers to converged and consolidated solutions.

Amdocs has the largest customer base and the broadest product line in the industry, including a full suite of end-to-end solutions for both Business Support Systems and Operations Support Systems.

The company's new state-of-the-art software suite called ‘CES 8' provides a single platform capable of supporting complex requirements of traditional and next-generation triple-play voice, video and data services as its focuses on addressing favorable market trends in the communications industry. This solution facilitates carriers to effectively monetize their assets, deliver superior services and improve its operating performance.

Amdocs maintains a strong balance sheet, with net cash position of nearly $7.30 per share, which will sustain its long-run business opportunities. Buoyed by this, the board of directors has authorized a share buyback program allowing the repurchase of up to $700 million of ordinary shares.

However, in the near term, profitability may suffer primarily due to higher expenses for productivity improvement, suspension of program implementation at Clearwire, and emerging markets sales opportunities. The company is still facing demand softness in the European regions and also in the North American markets.

Telecommunications Software Management System market is highly competitive. More than 100 vendors provide customer management and billing system solutions throughout the world. Amdocs is facing a high level of customer concentration. Three major clients, namely, AT&T (T),  Sprint Nextel Corp. (S) and BCE Inc. (BCE), accounted for 51% of the company's total revenue. A loss of any of these customers will result in significant erosion of the top line.

 
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