Tag Archives: bpo

Xerox Stock Rebuilds; Q1 EPS Rise Expected, But Not Better Revenue

Take your eye off iconic copier maker Xerox ( XRX ) for too long — heck, Xerox stock had done little more than fall since December 2014 — and you would have missed its run-up to Tuesday’s eight-month high at 11.39, up 34% since touching a nearly three-year low in January at 8.48. Xerox stock closed Friday at 11.16, flat for the session. Credit Suisse analyst Kulbinder Garcha doesn’t see much upside potential, giving Xerox a 12-month price target of 11 and a neutral rating in a research note issued Friday. He does see more first-quarter earnings in Xerox, modeling 1 cent more adjusted EPS than Wall Street’s 23-cent consensus, which would be up 10% from the year-earlier quarter. Xerox is scheduled to release Q1 earnings before Monday’s open. But Garcha sees slightly smaller sales than the $4.24 billion consensus of analysts polled by Thomson Reuters. That Q1 consensus would be a 5.1% decline from 2015’s Q1 sales and Xerox’s 17th consecutive quarter of shrinking year-on-year revenue, albeit slower shrinkage than the 8% decline in Q4 and 10% contraction in Q3. The rise in Xerox stock may be tied to anticipation over its imminent split into two companies: the legacy copier/printer/office machine business and the business-process outsourcing (BPO) spinoff. Based on $18 billion in 2015 sales, down 8% from 2014, the business-machine side would wind up with about $11 billion a year in sales, and the outsourcing spinoff about $7 billion, Xerox CEO Ursula Burns said when she announced the split on Jan. 29, concurrent with the Q4 earnings release. Inspired by activist investor Carl Icahn, Burns said the breakup would unlock value in both companies. Icahn would get three seats on the new BPO board, while Xerox would get six. BPO sales, grouped currently as services under Xerox, is a “show me story,” Credit Suisse’s Garcha said. “Management is trying to transition the business away from low-margin to more value-added business,” he wrote in a research note. “However, we think management has to show consistent improvement and deliver on results to regain investor confidence.” Garcha anticipates a Q1 decline of 5.4% to $2.4 billion in services revenue. As for the so-called “document technology” core hardware, software and document management businesses, Garcha estimates that about $1.6 billion of Xerox’s annual cost of goods sold are “yen-denominated,” coming from the Fuji Xerox joint venture (75% owned by Fujifilm ( FUJIY )). With the yen up about 9% year to date, foreign exchange “will impact margins,” but less than was earlier expected, Garcha said. For Q1, Garcha forecasts document tech segment revenue fell 12% to $1.6 billion. Not all of Xerox outsourcing will be part of the BPO spinoff. Document outsourcing, which fell 2% to $852 million in Q4 revenue, will stay with the larger portion of the split, a Xerox spokesman told IBD. Effective April 1, Xerox borrowed $1 billion unsecured from a consortium of seven banks to be repaid within a year or upon execution of the spinoff, whichever comes first. Xerox says the spinoff should be complete before year-end. With a market cap of $11.3 billion, Xerox is the fourth-largest member of IBD’s Computer-Hardware/Peripherals industry group, following Canon ( CAJ ), the newly reorganized HP Inc. ( HPQ ), and Fujifilm. Xerox carries a middling 66 IBD Compositing Rating. Its formidable BPO rivals, Cognizant Technology Solutions ( CTSH ) and Infosys ( INFY ) rate better, with CRs of 75 and 80, respectively.

Epam Jumps 9% As Q4 Beats; Can Stock Challenge India Outsourcers?

The stocks of Eastern European-rooted IT outsourcing companies, including Epam Systems,  have seen more downside in recent months than the India-centric ones. But Epam just had a great day. Newton, Penn.-based Epam’s ( EPAM ) stock jumped 14% early Thursday and kept most of that gain through the day, as investors responded to a consensus-beating fourth quarter report that included a 26% revenue surge and mixed guidance. Epam closed up 9.3% in the stock market today  at 65.67, still 22% off an all-time high set Dec. 17 at 84.41. The company went public priced at 12 in January 2012. Specializing in software development and testing for tech vendors, EPAM was founded by two Belarusians, one in Princeton. N.J., and the other in Minsk. Founded in Moscow, Luxoft Holding ( LXFT ), now headquartered in Switzerland, was up 2% Thursday near 51, still 36% off its its Dec. 8 record high of 80.64. Luxoft maintained half its workforce in Ukraine  before war broke out between the government and Russian-backed rebels. It still employs thousands in Eastern Europe as it grows its presence there, in Western Europe and elsewhere. Two of the largest IT consulting and business process outsourcing (BPO) firms, U.S.-based Cognizant Technology Solutions (CTSH) and India-based Infosys ( INFY ), are trading 19% and 15% below their 52-week high marks, respectively. Cognizant fell 1.1% to 56.01 Thursday and Infosys 0.4% to 16.41. Infosys holds the highest IBD Composite Rating of the bunch, 82 out of a possible 99. Cognizant gets a 79, as does Epam. Luxoft has a 65. While all four firms support employees outside their workforce bases, they have a more important thing in common: All four look to the U.S. for a plurality, if not a majority, of their revenue. “Epam’s competitive differentiation comes from its highly educated workforce in Eastern Europe and Russia, nearly all of whom hold a master’s equivalent university degree in math, science or engineering,” said Baron Global Advantage Fund ( BGAFX ) portfolio manager Alex Umansky in a Dec. 31 newsletter. “In contrast, most India-based competitors predominantly rely upon recent college graduates with limited experience.” The difference, he said, allows Epam “to work on higher-value client projects with stronger pricing power than peers” and makes Epam “well-suited” to benefit from rising corporate spending on SMAC, or social, mobile analytics and cloud technologies. Another outsourcer, neither Eastern Europe nor India oriented, ManTech International ( MANT ), rose 1.5% to close at 27.44 Thursday after rallying as high as 29.14 in the morning. ManTech is 22% off a nearly three-year high set exactly one year ago today, Feb. 18. ManTech specializes in highly sensitive IT for U.S. defense and intelligence agencies. After Wednesday’s close, ManTech offered revenue guidance up 5% for 2016, following a 46% slide in sales from 2011 through 2015, prompting Cowen analyst Gautam Khanna to suggest in a Thursday research note that “growth finally appears plausible.” For Q4, ManTech said diluted EPS fell to 37 cents from 39 cents a year earlier, on revenue of $402 million, down from $411 million in the year before. For the full year, diluted earnings rose to $1.36 per share from $1.27, on sales of $1.55 billion, down from $1.77 billion in 2014. As for Epam Systems, it earned 78 cents per share minus items in Q4, up 26% from a year earlier, beating Wall Street analysts polled by Thomson Reuters by 5 cents, on revenue up 29% to $260 million, beating analyst views by about $9 million. Epam guided adjusted Q1 EPS to 70 cents, short of analyst expectations of 72 cents, on revenue up 29% to $258 million, beating Wall Steet’s $250 million estimate. For the year, it guided adjusted EPS to $3.20 vs. analysts’ $3.16, on revenue up at least 26% to $1.151 billion, beating Wall Street’s $1.122 billion.  

Cognizant ‘Throws Gas’ On Fire Burning Software Stocks

A big outsourcing company with a broad landscape, Cognizant Technology Solutions ( CTSH ) threw “gas on a bonfire” burning software stocks by warning of weakness in information technology for the banking and health care industries, said investment bank Evercore ISI. “Cognizant specifically highlighted a weakened demand environment in the financial services and health care sectors as key drivers behind disappointing” Q1 and 2016 guidance, Evercore ISI analyst Kirk Materne wrote in a research note Tuesday. Cognizant on Monday posted Q4 earnings that beat analysts, but it disappointed investors with guidance below Wall Street estimates, sending Cognizant stock down 7.7% Monday. And Cognizant stock was down another 3.3% in midday trading in the stock market today , at a 13-month low near 52. IT business process outsourcing (BPO) rivals  Infosys ( INFY ) and Accenture ( ACN ) were each down about 2% midday Tuesday. And IBM ( IBM ) stock was down more than 1.5% Tuesday. Its new IBM Watson Health is geared specifically to getting hospitals and medical practices migrating toward better electronic health records. Health care software vendor  Athenahealth ( ATHN ), which has been struggling near seven-month lows, was down 1%. “Rising medical costs, consumerization of health care and a changing regulatory environment, among other things, are driving industry consolidation in the payer industry,” said Cognizant President Gordon Coburn in the company’s earnings conference call with analysts. “We’re seeing some slowdown in our health care practice due to this consolidation, particularly in the early part of this year, as reflected in our Q1 guidance. “That said, we remain optimistic about the long-term opportunities within the payer segment and are quite encouraged by the large deal pipeline in this area for 2016. As the health care industry shifts from fee-for-service to value-based care models, health care organizations are simultaneously looking for new ways to deliver consumer-centric care while driving operational efficiencies.”