Merrill Lynch said on Monday that it was reiterating a “Buy” rating on Amdocs after a meeting with the company’s management.
The meeting focused on three key issues: the recently announced SEC investigation into Amdocs’s company forecasts last year, concerns over margin erosion, and the nature of the contracts in the pipeline.
Amdocs’s management provided little insight into the merits for the SEC investigation and provided little specifics on forthcoming deals, Merrill Lynch analyst Tal Liani said. But the company did repeat its confidence in its ability to provide the authorities with sufficient evidence to prove its good faith of estimates, he added.
Liani highlighted the fact that class action lawsuits against Amdocs surrounded three issues: proper accounting accusations, suspicious timing of insider selling and good faith of forecasts. The fact that the SEC is investigating only the company forecasts may imply that it did not find sufficient reason to open an investigation on the other two items, he said.
Addressing concerns about margin erosion, management reiterated its guidance for a return to normal margin levels from outsourcing contracts with Certen and SBC in the future, Liani stated.
“However, the company highlighted that there are many more contracts in the pipeline, some of them are outsourcing and some are traditional customization contracts. The future margin depends on the mix of future wins between the two types,” he said.
Amdocs shares fell 0.7% on Monday and closed at $21.86 on the New York Stock Exchange.
Published by Globes [online] - www.globes.co.il - on 29 July, 2003