BCE BCE Inc

On May 16, 2014, we issued an updated research report on Amdocs Ltd. (DOX). The company has won important managed service contracts in the economically volatile European region. We believe that the long-term fundamentals of the company are intriguing due to the transition of the telecom industry to converged IP solutions.

Amdocs has delivered positive earnings surprises in the last four quarters, with an average surprise of negative 8.68%. It also reported better financial results for the second quarter of fiscal 2014 wherein both the top and the bottom line easily surpassed the Zacks Consensus Estimate.

Amdocs’ business opportunity in the U.S. is more visible after stabilization of businesses with AT&T Inc. (T) and renewal of long-term contracts with several leading telecom and cable TV operators like Comcast Corp. (CMCSA). Furthermore, it has signed a 5-year global managed services agreement with Vodafone Group plc. (VOD). The new deal will help the carrier optimize its customer care and billing activities.

Recently, Amdox acquired privately-held Actix, a leading provider of software for mobile network optimization. Also, Amdocs took over Calcite – a leading provider of network management and self optimizing network solutions. These buyouts are expected to enhance Amdocs’ CES portfolio across telecom networks and information technologies. Moreover, a strong cash position coupled with increased free cash flow will help Amdocs pursue future acquisitions.

On the flipside, Amdocs is experiencing high customer concentration. Three major clients, namely, AT&T, Sprint (S) and BCE Inc. (BCE) together accounted for over 50% of the company’s total revenue. Loss of any of these customers will result in significant erosion of the top line.

Moreover, consolidation trend in the U.S. telecom industry may significantly affect the operations of the company going forward. Sprint’s merger with Japanese telecom operator Softbank and acquisition of Clearwire may also affect Amdocs’ top line. While T-Mobile USA (TMUS) has acquired MetroPCS, AT&T has decided to acquire Leap Wireless. All these collaborations will probably have a material effect on Amdocs.

Amdocs currently has a Zacks Rank #3 (Hold).

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