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On Tuesday, CFRA analyst Brooks Idlet adjusted the outlook for Amdocs Ltd. (NASDAQ:DOX), downgrading the company’s stock rating from Buy to Hold and reducing the price target from $98.00 to $96.00. The stock, currently trading near its 52-week high at $91.12, has shown resilience with an 11% return over the past year. The revision reflects concerns over rising macroeconomic uncertainty and its impact on global supply chains, inflation, and interest rates. These factors are expected to lead to a slowdown in customer discretionary spending and a slower conversion of the company’s sales pipeline. According to InvestingPro data, four analysts have recently revised their earnings estimates downward for the upcoming period.
The new price target is based on a forward price-to-earnings (P/E) ratio of 12.5 times CFRA’s fiscal year 2026 (ending September) earnings estimate. The company currently trades at a P/E of 19.17x, which InvestingPro analysis suggests is high relative to near-term earnings growth. This multiple is slightly below Amdocs’ three-year average forward P/E ratio of approximately 12.9 times. The adjustment accounts for the complex global supply chain issues and the upward pressure they are placing on inflation and interest rates. Despite these challenges, InvestingPro’s comprehensive analysis indicates the stock may be slightly undervalued at current levels.
Despite the downgrade, CFRA maintains its fiscal year 2025 earnings per share (EPS) estimate for Amdocs at $7.00 and has slightly increased the fiscal year 2026 EPS forecast by $0.02 to $7.70. The analysts acknowledge the positive aspects of Amdocs’ strategy, including the phasing out of non-core sales and the restructuring of the business to focus on managed services, which is expected to offer better visibility and significantly improved margins.
However, CFRA believes that the structural improvements Amdocs is implementing will require more time to fully materialize. The firm anticipates that Amdocs shares will likely stay within a certain trading range in the medium term. This is partly due to the expectation that Amdocs’ GenAI product signings will take longer to accelerate to significant sales levels. Additionally, the ongoing macroeconomic uncertainty is seen as a factor contributing to the overall slow conversion of the company’s backlog.
In other recent news, Amdocs Limited reported second-quarter earnings that surpassed analyst estimates, with adjusted earnings per share of $1.78 compared to the expected $1.72. However, the company’s revenue of $1.13 billion fell short of the anticipated $1.15 billion, although it was within the guidance range of $1.105-$1.145 billion. Despite this, Amdocs maintained its forecast for fiscal 2025, expecting a revenue decline of 10.9% to 9.1% as reported, but projecting growth of 1.7% to 3.7% on a pro forma constant currency basis. The company remains optimistic about achieving double-digit total shareholder returns in fiscal 2025, supported by improved profitability and strong cash flow conversion. Amdocs’s board also authorized a new $1 billion share repurchase program. Stifel analysts maintained a Buy rating on Amdocs stock with a $100 price target, noting the company’s solid free cash flow and growing backlog. The analysts observed no significant changes in customer purchasing patterns and upheld their earnings per share estimates for fiscal years 2025 and 2026. Amdocs forecasts third-quarter revenue between $1.11 billion and $1.15 billion, with adjusted EPS expected to be between $1.68 and $1.74.
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