COMPANY SPOTLIGHT: Amdocs (DOX)

Aiming to Fill the Bill

December 26, 2007 - The explosion of communications in the past two decades--from Internet to cell phones and digital media--has added greatly to the lore of complicated phone bills, not to mention the business of Amdocs (NYSE:DOX).  This company provides billing and customer management software and services for the telecom industry to the tune of several billion dollars.  

Amdocs was already well established in traditional telecom billing, so it came to this game with a strong foothold in this massive, behind-the-scenes "niche" in the communications industry.  Now the bundling of various services, not to mention lucrative add-ons and premium services, create a maze of complex billing options, revenue opportunities, and demand for Amdocs.

It all adds up to revenues of $2.84 billion for Amdocs last fiscal year, which ended in September.  That figure is expected to hit $3.09 billion in FY2008.  Earnings per share are expected at $2.35 in FY08 and $2.66 in FY09.  

As consumers increasingly buy ring tones and music for their cell phones, not to mention bundled Internet access and VOIP phone service, Amdocs products and services are behind the scenes enabling  everything from managing the orders at the start to deploying resources and billing the customers after.

Amdocs has built on its old relationships with the Baby Bells and other big names like British Telecom, but that's not to say it hasn't faced heavyweight competition in this market.  CSG Systems, Convergys, and ADC Telecom are competitors that also sport markets caps in the billions.  Amdocs is the largest among these firms, though, with a valuation of nearly $7 billion thanks in part to its impressive growth trajectory.  

NYSE: DOX
$33.96 (as of 12/26/07 )
P/E 20.5	PSR 2.4
ROE 15.3%	BETA 0.82
Debt/Eq. 0.17
Our "Five Benchmarks" tutorial explains these numbers

The company had to lower its revenue guidance slightly a few months ago and earnings were only as expected last quarter, but Amdocs beat the consensus in the previous three quarters. Nonetheless, the stock has slipped from the neighborhood of $40 to around $34 currently. DOX has been a stellar performer in past years, so with earnings estimates still charting a solid growth trajectory and the stock now retreating it certainly catches the eye as a possible buying opportunity for an otherwise prized stock.

Analysts are forecasting a 14% average growth rate for earnings over the next five years.  With the stock back below $34, DOX is valued at 12.7 times forward earnings and about 2.4 times sales.  Amdocs may never be a household name, but it's certainly well known among Wall Street professionals as a company delivering big profits and solid growth. This is a business and a stock worth knowing and the recent retreat may stoke interest for those looking to pick up a premium company at a discount.

- James Hale