Six analysts have raised their earnings forecasts for next quarter for our first idea today, an outsourcing company, which just beat estimates by two cents last quarter. Our second recommendation is a Sell of a stock that reported disappointing results.
Buy: ExlService Holdings (EXLS)
From The Periscope Report
ExlService Holdings (EXLS) provides outsourcing and transformation services, mainly to insurance companies and financial institutions.
Management lowered its revenue guidance for 2016. Revenues are now expected in the range of $691 - $703 million, down from prior guidance of $694 - $707 million, representing annual revenue growth of 12% - 14%. Management maintained its earnings guidance of $2.25 - $2.35 per share, representing growth of 11% - 16%.
Sales for the 2Q ended June 2016 increased 10% YoY to $170.5 million, after increasing 16% YoY in the prior quarter. Revenues were up 2% sequentially.
On a Non-GAAP basis, Net Income increased 15% YoY to $18.8 million, after increasing 40% YoY in the prior quarter. Net earnings improved to $0.55 per share, up from $0.48 per share a year ago. EXLS beat the sell-side estimate by two cents. It was the 12th straight quarter EXLS has beat estimates.
The balance sheet is super-strong with a ton of cash and fast collection. This will help EXLS make small, tuck-in acquisitions over the next few years, which creates high barriers to entry, and keeps EXLS as the market leader.
On the conference call, CEO Rohit Kapoor said the strong 2Q results was led by Healthcare and Banking & Financial Services through new deal wins and the expansion of existing client relationships.
After the 2Q closed, EXLS acquired LISS Systems Limited, a London-based provider of digital customer acquisition and policy administration solutions for the insurance industry. LISS is a pioneer in the digital insurance world. During the 2Q, EXLS won 7 new clients, consisting of 2 new clients in Operations Management and 5 new clients in Analytics. EXLS won 11 new clients in the prior quarter.
The demand environment for EXLS services remain strong. The decision to outsource to a strategic partner who can quickly deliver real benefits, while simultaneously providing access to domain specific talent and technology is very compelling. Management expects the adoption of outsourcing will significantly increase over the next three to five years.
In Operations Management, EXLS has a strong pipeline in insurance, healthcare, and finance and accounting with many large deals in advanced stages of discussion. The pipeline is strong across all markets, e.g. the U.S., UK, Europe and Australia, with broad based interest in the EXLS global delivery center.
The Top 10 client concentration continues to decline as a percentage of total revenue — was 40.2% in the 2Q, compared to 42.0% a year ago.
EXLS repurchased $9.7 million of stock in the first half of 2016 at an average price of $46 per share. Buy.
Tom Byrne, The Periscope Report, 4025 Sunset Ridge Drive, Canyon Ferry Crossing, Helena, MT 59602, 406-465-4663, August 2016