Stocks’ Details
 

Amdocs Limited

 
Key Strategic Developments: Amdocs Limited (NASDAQ: DOX) is one of the top providers of software and services relating to communications, Pay TV, and media industries across the world. In a recent update, the company announced that it has expanded the agreement with Liberty Global to offer continuous access on multiple devices to communication & entertaining media services. In another update, the company stated that it has been chosen by Globe Telecom, for DOX’s cloud-native, microservices-based CatalogOne and DigitalOne solutions. The multi-year managed services agreement will deploy Amdocs’ solutions on a top public cloud. The company also partnered with SoftBank Corp. on a Proof of Concept (PoC) to offer the latter with its cloud native IntelligenceONE platform on Microsoft Azure to utilize business intelligence (BI) and artificial intelligence (AI) solutions. 
 
2QFY20 Key Financial Highlights: During the quarter, the company reported non-GAAP earnings of $1.08 per share, as compared to $1.06 per share reported in pcp. The company reported revenues of $1.05 billion, soaring 2.9% year over year. The increase was on the back of higher demand from North America and robust growth in the Rest of the World and Europe. Furthermore, addition of new customers and robust project implementation raised revenues. Non-GAAP operating income came in at $181 million, up 1.8% on pcp. The company exited the period with cash and cash equivalents of $763 million. Cash flow from operating activities stood at $103 million, with free cash flow amounting to $57 million.

Key Financial Highlight
 
What to Expect: For 3QFY20, the company expects revenues to be in the range of $990 million and $1,040 million. Non-GAAP earnings per share is expected to be in the ambit of $1.00-$1.08 per share. For FY20, the company expects revenues to increase by 0.5% to up 3.5% year over year on a constant currency basis, down from the previous outlook of 2.5% and 5.5%. Non-GAAP earnings is expected to grow between 0 - 4% year over year (previously 3-7% growth year over year).
 
Valuation Methodology- P/E Multiple Based Relative Valuation (Illustrative)

P/E Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of DOX closed at $62.67 with a market capitalization of $8.4 billion. The stock is trading at the lower band of its 52-week trading range of $44.05 to $77.29. The stock of the company went down by 2.2% in the past one month. Debt to equity multiple in March’20 stood at 0.10x, lower than the industry median of 0.57x. Considering the above factors, we have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). Hence, we recommend a “Buy” rating on the stock at the closing price of $62.67, up 1.61% on 20 May 2020.
 

DXC Technology Company

 
Buyout Synergies and New deal Wins are Key Catalysts: DXC Technology Company (NASDAQ: DXC) is a cloud-based service provider of innovative Information Technology, enhancing data and offering security and scalability to its users. In a recent update, the company stated that it has been chosen by the Federal Life Insurance Company to build life and health policy purchasing capabilities for both customers and agents. This, in turn, will simplify key processes and propel business prospects.
 
DXC Finalizes CMORE Buyout: In another update, the company stated that Luxoft, a software engineering arm of DXC has completed the buyout of mobility systems developer, CMORE Automotive, for an amount which was kept undisclosed. The acquisition will help DXC to enhance its competencies in the Advanced Driver Assistance Systems programs.
 
Q3FY20 Operating Highlights for the Period ended 31st December 2019:  During the quarter, the company reported revenue of $5,021 million, down from $5,178 million reported in the year-ago period. Global Business Services provided a revenue growth of ~8.8%, while Global Infrastructure Services reported a decline in revenue of ~11.5% on pcp. The company’s adjusted EBIT margin stood at 10.5%, as compared to 16.2% in the previous year. Non-GAAP income from continuing operations stood at $468 million, down from $786 million reported in 3QFY19.
 
 

Key Highlights (Source: Company Reports)
 
What to Expect: Due to Coronavirus outbreak, the company withdrew it FY20 guidance. However, the company stated that it will provide FY21 outlook in May 2020.
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales based relative valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of DXC closed at $16.98 with a market capitalization of $4.3 billion. The stock made a 52-week low and high of $7.90 and $57.23 and is currently trading at the lower band of the range. The stock corrected by 45.77% and 71.31% in the last three months and one year, respectively. However, in the last one month, the stock ran up 5.41%. The company remains on track to benefit from continued strength in the Digital business. Notably, the company is set to report its 4QFY20 on May 28, 2020. Considering the aforesaid facts, current trading levels and recent price movements, we have valued the stock using the EV/sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). For the purpose, we have taken the peer group - Cognizant Technology Solutions Corp (NASDAQ: CTSH), Xerox Holdings Corp (NYSE: XRX), and Unisys Corp (NYSE: UIS). Hence, we recommend a ‘Buy’ rating on the stock at the closing price of $16.98, up 5.07% as on 20 May 2020.
 

Schlumberger N.V.

 
SLB Rides on International Expansion: Schlumberger N.V. (NYSE: SLB) is engaged in providing technology for reservoir categorization, production drilling, & processing to the oil and gas industry. In a recent update, the company announced that its M-I SWACO business unit in Broussard, Louisiana, is utilizing part of its production facility to manufacture hand sanitizer.
 
1QFY20 Financial Highlights for the Period Ended 31 March 2020: During the period, the company reported total revenue at $7,455 million, down 5% year over year and 9% on a sequential basis. The company reported a net loss of $7,376 million as compared to a profit of $421 million in the year ago period. International revenues for the period increased 2% year over year to $5,121 million. North America revenues stood at $2,279 million, plummeting 17% year over year, owing to cash flow limitations as well as customer budget exhaustion.  The company’s resilient  international business, which performed well amid COVID-19 was a key positive during the quarter. Profits from Drilling, Reservoir Characterization and Cameron segments were other key catalysts.
 
 

1QFY20 Income Statement Highlights (Source: Company Reports)
 
Cash Flow & Balance Sheet Details: Cash flow from operations came in at $784 million, whereas free cash flow was $179 million. As of 31 March 2020, the company had ~$3,344 million in cash and short-term investments. Long-term debt stood at $15,409 million.
 
What to Expect: In FY20, the company expects capital expenditure to be ~$1.2 billion. The company anticipates global capital expenditure to decline by 20% in 2020. North America is likely to see a 40% decline in capital expenditure.
 
Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow value Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of SLB is quoting at $18.21 with a market capitalization of $25.27 billion. The stock is trading below the average of its 52-week high and low of $41.40 to $11.87, respectively. The stock corrected by 50.1% and 56.15% in the last three months and one year, respectively.However, in the last one month, the stock ran up 11.98%. The increase in international markets as well as robust SIS digital software sales were key positives. Considering the above factors, we have valued the stock using a price to cash flow multiple based illustrative relative valuation method. For this, we have taken peers like National Oilwell Varco Inc (NYSE: NOV), Halliburton Co (NYSE: HAL) and Baker Hughes Co (NYSE: BKR) and arrived at a target price with low double-digit upside (in % terms).  Hence, we give a “Buy” recommendation on the stock at the current market price of $18.21, up 6.43% as on 20 May 2020.

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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