Merrill Lynch analyst Tal Liani today released a new report on Amdocs Ltd. (NYSE: DOX). Asking, “Why is the stock so weak?” Merrill Lynch says, “Amdocs stock has lost 7.5% since December 4 over concerns related to AT&T’s deployment of IPTV (Lightspeed project) and the potential loss of business with AT&T should the merger with BellSouth not get the required regulatory approvals. In this note, we elaborate on these issues, but conclude that these concerns represent a good buying opportunity on the dip, as we consider most of the issues to be temporary and immaterial.”
Merrill Lynch gives Amdocs a “Buy” recommendation at a target price of $43, 19.5% above its market price.
“AT&T is a significant customer for Amdocs. Its IPTV initiative is expected to contribute about $100mn in annual revenues in 2007, with Cingular adding another $100 million and the AT&T’s Yellow Page and enterprise operations adding about $120-130 million. Should BellSouth merge with AT&T, it is expected to migrate its customers over the next few years to AT&T’s new billing and customer care systems, which are all provided by Amdocs.”
Liani says, “We believe that Amdocs has run into some deployment hurdles at AT&T, which may have concerned investors over the last few days. The issues are related to timely delivery of certain features, which has prevented AT&T from rolling out IPTV nationwide by the first week of December, as was originally planned. The issues are related to the integration of a few of Amdocs’ systems and the support of AT&T’s IPTV marketing initiatives.”
Merrill Lynch adds, “With personal involvement of very senior management on both the Amdocs and AT&T sides, Amdocs’ management seems to be hands-on with these issues and has allocated substantial resources to resolve them. While the stock is down on these concerns, we believe this represents an interesting buying opportunity for various reasons: First, we expect some of the issues to be resolved soon… and expect to see national roll out of AT&T’s IPTV service in January; second, such obstacles are typical in such large scale and complicated contracts, and investors should not over-emphasize their importance…; third, we have seen similar obstacles in other large contracts in the past, for example Cingular and Bell Canada; and finally, in our view, the Lightspeed billing project has past the point of no return.”
Although 2006 is not yet over, it is clear that Amdocs is one of the best performing Israeli-affiliated stocks of the year. The share rose 48% between January and the end of September, but subsequently fell almost 12%, including 6.7% in the last three weeks. Amdocs has a market cap of $7.4 billion. It posted a net profit of $409.3 million on $2.48 billion revenue in its 2006 fiscal year.
Published by Globes [online], Israel business news - www.globes.co.il - on December 20, 2006
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