Money manager Ken Fisher recommended several stocks he was bullish on in the August edition of Forbes magazine. Having some experience with software I thought I would take a look at Amdocs (DOX), a provider of software and services to major telecommunications companies. In a nutshell, Amdocs sells integrated CRM software that enables the likes of AT&T and Sprint Nextel to manage customer billing, ordering, and support.
DOX has positioned itself to take advantage of increasing competition in the traditional telecom, wireless, and cable space. As competition between these companies accelerates, the need to differentiate products and services has increased. Customer support and services, typically viewed as nothing more than necessary costs to the business, are now being singled out as key differentiators for customers. This is where Amdoc’s “integrated customer management” software comes in, allowing providers to implement an industry based solution which ties customer centric “front-office” services to critical “back-office” operations.
The company has been making some good strategic moves as of late. From a growth perspective, it has been expanding through key acquisitions such as the purchase of DST Innovis (which provides customer management services to companies such as Direct TV and Comcast). More importantly, it sees the opportunities emerging internationally as well. Amdocs purchased Longshine Information Technology in 2005 in order secure a foothold in the rapidly expanding Chinese market. Further, its acquisition of Cramer Systems allows it leverage the company’s strong front office inventory software and strengthen its market share in Europe.
DOX metrics look relatively strong. A Return On Equity (ROE) of around 15% puts it in the top quintile when weighed against its peers in the industry. Similarly, strong Operating margins (12%), EBITDA margins (18%) and profit margins (12%) also put it at the head of its class. Even so, with a trailing twelve month P/E ratio of 22.6, it trades at a price lower than 60% of its industry peers.
Finally, the company boosted investor confidence recently by announcing a $400 million dollar stock buyback program. According to Standard & Poors, with demand in the customer care space growing, DOX could be due for a run-up in share price into the mid $40s from its current price of $35.