Author Archives: Scalper1

Cognizant Nears, ExlService Hits Record As Outsourcing Stocks Rise

You can almost hear the conversation: “That team did such a great job on that project,” said CEO Joe Fiction, “let’s give them the entire product line to operate and save some dough.” Converting traditional business process outsourcing (BPO) into business process management (BPM) framed the Indo-U.S. BPO Summit this week in Orlando, Fla., sponsored by the Indo-American Chamber of Commerce and India’s National Association of Software and Services Companies ( NASSCOM). Billed as a first-of-its-kind conference, the timing couldn’t have been better, as many of the outsourcers were trading near record highs after a slow start to the year. Service-level agreements “are changing to reflect this (BPO-to-BPM conversion), becoming more business-outcome-focused and leading the market to shift from a pure RFP (requests for proposal) procurement approach to a managed-service, end-to-end solution offering,” said Cowen analyst Bryan Bergin in a research note Friday. “This drives the shift from BPO to BPM and a strategic partner position. The effect of this evolution increases the stickiness of the revenue stream but also ties the fortunes of the provider even closer to that of their client base.” Many BPOs were represented at the show, including  Genpact ( G ), Wipro ( WIT ), Convergys ( CVG ) and WNS Holdings ( WNS ). But Bergin focused on Cognizant Technology Solutions ( CTSH ) and ExlService Holdings ( EXLS ) for their “industry depth and value-added service approaches that position each to win in this evolving landscape,” he said. Cognizant stock was up a fraction in afternoon trading in the stock market today , near 63 but still 10% off its Oct. 28 record high. ExlService stock was up more than 1%, near 52.50, just off of Wednesday’s all-time high of 52.92. Wipro stock was up 1%, 5% off its 52-week high. Genpact stock hit a record high Friday and was up nearly 1.5% Friday afternoon. WNS was up 3.5% Friday, just 7% from an eight-week high touched Nov. 2. Infosys ( INFY ) stock was up more than 1% and near a five-year high. Hewlett Packard Enterprise ( HPE ) stock was up 3% and hit a new record high Friday. “We favor EXLS for its traditional BPO model pairing with an operations consulting business and rapidly growing analytics offering,” Cowen’s Bergin said. “CTSH is building its BPM via a vertical-specific approach, leveraging its scale and expertise in health care and financial services to drive its (approximately) $1 billion business that is growing faster than the company average. We favor such approaches in the evolving BPM landscape.” Cowen carries ExlService with an outperform rating and a 63 price target. Cowen too rates Cognizant as outperform, with a 65 target. ExlService is a member of IBD’s Commercial Services-Outsourcing industry group, which hit a record high Friday. Cognizant is a member of IBD’s Computer-Tech Services industry group, which was trading 9% off its all-time high set Nov. 5. Both companies are near the top of their heaps for overall stock and operating performance, with ExlService earning an IBD Composite Rating of 98 out of a best possible 99, and Cognizant a 93 CR.

Financial Software Makers Help Customers Become More Efficient

The financial software industry group has had a good run since the 2008 financial crisis, but has paused in recent months. It might be setting the stage for another advance, led by several stocks, most conspicuously Ellie Mae ( ELLI ). The group ranked No. 58 out of 197 in Friday’s IBD, hardly high enough to warrant special notice, except that five of the 15 companies in the group have a Composite Rating to the north side of 90, putting them in the top 10% of the universe of U.S. stocks, based on a variety of proprietary IBD measurements. Ellie Mae hit a new high Thursday, showing plenty of signs of institutional buying as evidenced by a high Accumulation/Distribution Rating. It has a Composite Rating of 98. The company offers its customers — who include mortgage companies, credit unions and banks — a unified platform, called Encompass, designed to streamline the origination and underwriting of loans in an efficient way. Since the company came public in 2011, mortgage writing has been essentially flat. But the company has managed to grow earnings and revenue at an impressive rate as more players in the mortgage market use its tools. It claims that 1,700 out of 8,000 participants are its customers, including seven of the top 25. But growth might be starting to slow. Earnings per share in the most recent report, although blowing away estimates, was just 16% higher than a year earlier, and analysts are expecting a 6% decline in the next report. Another company with ties to the mortgage business, at least partly, is Fair Isaac ( FICO ), which is known for producing the FICO scores that gauge consumers’ creditworthiness. More broadly, the company provides analytics software to help manage risk and fight fraud. The company says that 2.5 billion credit cards globally use Fair Isaac’s FICO anti-fraud systems. Shares of Fair Isaac hit a new high Friday, and the stock also shows signs of institutional buying. It’s extended from any buy point and has been on a run since reporting better-than-expected earnings Jan. 29. The stock was up 16% the next day. Earnings have been growing at a steady rate the last few years, but revenue growth is mostly a single-digit affair. Analysts are forecasting a 25% decline this year, but a 25% increase in 2017. The Composite Rating is 95. Another leader in the group is software publisher Intuit ( INTU ), which makes the familiar Quicken software for personal finances, QuickBooks for small businesses and TurboTax for tax preparation. It’s benefiting from users migrating to the cloud. It says that online customers have grown from 21 million to 29 million over the past three years while desktop customers have declined from 9 million to 8 million. The stock had a bad break last August in reaction to an earnings report and is basing as it recovers from that. Image provided by Shutterstock .