Citigroup Global Markets research arm Citi Investment Research has reiterated its “Buy” recommendation for Amdocs Ltd. (NYSE: DOX) but cut its target price to $46 from $47, after the company published its financial report for its fourth fiscal quarter of 2007.
Citi says, “We continue to see good value in Amdocs for long-term investors. There could be near-term weakness in Amdocs as investors figure out the seeming disconnect between its bullish comments on material near-term signings and its tepid guidance. To us, the ‘disconnect’ is a matter of timing because signings in November-December 2007 benefit only in the second half of 2008 and beyond.
“Will Amdocs finally be off to the races if it announces one or more contracts? We think so, because it will boost management credibility after fiscal 2007, which was clearly an “off” year for the stock. GARP investors who can wait through mid-2008 for better growth and near-certain margin improvement should be especially interested in the stock.”
Citi concludes, “Given the return potential, we would encourage long-term investors that are happy with above-market 9-11% revenue growth and moderately faster earnings and earnings per share growth to use this near-term weakness to buy Amdocs.”
Merrill Lynch too sees the problems at Amdocs as short term, and maintains a "Buy" rating. "No two ways about it the weak guidance and the decline in deferred revenue is worrisome. However, in a very atypical comment, management provided color on the pipeline, noting a high degree of confidence on signing a few large deals in the second half of 2008. This should lead to a strong recovery of year-on-year growth rates from 7-8% in the first half of 2008 to 12.8% in the fourth quarter of 2008, with margin improvement throughout 2008," Merrill Lynch's review says.
Published by Globes [online], Israel business news - www.globes.co.il - on November 1, 2007
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