Amdocs Ltd. (NYSE: DOX), which I hold in my portfolio tracked by "Globes", has appeared every so often in the Israeli press in negative items about layoffs or leaving offices. However, it recently held a fairly optimistic analysts' day in New York, which encouraged investors.
Sometimes, paradoxically, what encourages investors can depress employees. Amdocs management made it clear that as long as the global economy is in recession, the company will continue to aggressively maintain its profit level and cash flow. That means potentially more layoffs and office closures.
While here, employees have been sent home, on Wall Street the share has risen 16% since the beginning of the year, and is up 34% from its March low. Amdocs managers repeated the guidance they gave at the conference call following the company's results that is, earnings per share of $0.46-0.50, and sales of $670-690 million for their fiscal third quarter, which ends next month. As such, it can be assumed that there will not be a profit warning this quarter.
One of the long term growth drivers on which the company is relying is the cable and satellite sector, which Amdocs entered into in recent years, including through acquisitions.
While the cable industry as a whole may grow at an annual pace of around 5%, Amdocs believes that their growth in the sector will be higher, because they will succeed in expanding their market share through better software solutions for the complicated billing issues in this age of advanced communications services, such as triple play, and sometimes even quad play, when mobile services are added to VOD, fast Internet, and VoIP.
In the telephony sector, which has been the bread and butter for Amdocs since its inception, US provider MetroPCS announced on Thursday that within nine months it will complete the transfer of all its subscribers to Amdocs platform CES 7.5, which provides real time billing information, customer relationship management (CRM), and operations support system (OSS).
The earnings season for companies whose quarter ended in April continues, with Sigma Designs (Nasdaq: SIGM) reporting on Wednesday, and Marvell Technology Group (Nasdaq: MRVL) reporting on Thursday. Both will report after the close of trading.
Sigma basically has a 100% market share in the IPTV processors that are in digital media adapters based on Microsoft operating systems, which are the market leaders today. Sigma is expected to report revenue of $48 million and earnings per share (EPS) of $0.23 for the quarter.
While Sigma's expected EPS is half the EPS that it had in the corresponding quarter of last year, the share, despite a recent rise, is still at a third of the record price at the beginning of the corresponding quarter, when it turned out that AT&T, the biggest customer of those adapters, had built up a large inventory.
Sigma shares rose 20% in the past ten days, and one of the things I don't like is a share climbing right before an earnings release, because expectations skyrocket. In the best case, if there is no disappointment, there is often a "sell on news" effect, and in the worst case, if the company misses estimates or issues lower than expected guidance, there is a collapse.
Investment house UBS analysts forecast results and guidance to be in line with the consensus, and give Sigma a "Neutral" rating, with a target price of $15, lower than the market price of about $16 per share.
In my opinion, if we assume that the worst of the recession is behind us, and that budgets for investment in IPTV services will recover over the coming year (since telephone companies are in a battle for survival with the cable companies), then Sigma actually appears to be one of the more interesting stocks, taking into account the depth of the technology and its profit and cash levels.
Published by Globes [online], Israel business news - www.globes-online.com - on May 26, 2009
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