IT与BPO服务业：制定2020年价格目标.docx

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1、North America Equity Research15 August 2019Payments, Processors & IT ServicesTien-tsin Huang, CFA AC(1-212) 622-6632tien-tsin.huangjpmorgan Bloomberg JPMA HUANG Puneet Jain(1-212) 622-1436puneet.x.jainjpmorgan J.P. Morgan Securities LLCJ. P MorganIT and BPO ServicesEstablishing 2020 Price TargetsWit

2、h this report, we are rolling forward our price targets a year to Dec. 2020. IT/BPO services sector had a mixed 1H19; while the sector as a whole modestly outperformed the broader market, company specific returns and financial performance was more divergent than usual. Digital focused firms and offs

3、hore BPO firms outperformed as expected, while legacy firms (specifically, DXC and CNDT) and offshore IT services fiiTns in our coverage universe (CTSH and VRTU) significantly underperformed. We attribute the divergence to continued high demand for digital and transformation/BPO services, creating s

4、ecular headwinds for legacy firms stmggling to re-mix to modem work. Hard to expect further multiple expansion for the winners going forward, as multiples are at record high levels for some of the outperfoiTners (e.g. GLOB, ACN), but premium and durable growth should be sustainable and rewarded vers

5、us legacy names. VRTU and DXC are our top picks, which offer the highest earnings growth and/or multiple expansion potential. We also remain Overweight ACN and WNS where absolute returns may not rank at the top of the group, but risk to earnings should be below average. Our top picks are biased towa

6、rds value, which has been out of favor, and a function of our lukewarm outlook for the sector as a whole. YTD 2019: A tale of two cities. While the overall sector is up 17% YTD (vs. S&P 50() up 15%), there was a clear separation between top perfbnners and others in stock returns. Top half performers

7、, on an average, outperformed the bottom half by 70% in YTD returns, as financial performance was clear and underperfonners were punished. The top stocks (GLOB, G, WNS, and ACN) reported better than expected revenue and earnings and expanded margins, resulting in solid multiple expansion; while the

8、underperformers (DXC, CNDT, VRTU, and CTSH) lowered their revenue and margin expectations during the period. We attribute the divergent performance to company specific drivers and acceleration in mix-shift towards digital at expense of legacy. Ranking growth 2019-2021. GLOB remains by far the fastes

9、t growth (by revenue and long term earnings) name, followed by VRTU and offshore BPO companies. Among offshore BPO, WNS is expected to grow revenue faster than its peers. Bottom quartile growers include legacy IT/BPO services names such as DXC and CNDT. IBM stays in the bottom quartile, but should b

10、enefit from the Red Hat deal which we expect to push its revenue growth rates into positive ten itory over the next few years. Ranking upside/downside to new price targets. Names with the greatest upside to our targets include: VRTU (47%), DXC (32%) and CNDT (21%). Names with the least upside to our

11、 targest include: CTSH (7%), EXLS (10%), and IBM (10%). However, our ratings and recommendations balance potential returns w/ risk in achieving those returns. Recommend VRTU as the top pick; DXC as top deep value pick. We recommend VRTU (OW) as our top pick given its top quartile growth profile (dri

12、ven by above industry average revenue growth and margin expansion) and yet a below average trading multiple. We also like DXC (OW) as a deep value idea, given its low valuation levels should make stock repurchase and potential strategic actions highly accretive. We continue to rate CNDT OW as potent

13、ial strategic actions could unlock value from the stock. We continue to recommend WNS (OW) as the top BPO idea, given its higher sustainable revenue growth profile. We remain on sidelines with a positive bias for Neutral rated G and IBM, as we*d like to see more evidence of sustainable growth rates

14、and execution, respectively. Finally, we continue to rate CTSH as UW given the uncertainty surrounding a difficult transition to being a higher growth company.See page 41 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its resea

15、rch reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. jpmorganmarkets Figure 3: Target Multiple vs. Long-Te

16、rm EPS Growth RateGLOBGLOB% % y y yJ% 叫y)y 864208642。4 1 1 JI mMOoEsl 6U。IOxDXC5xVRTUCTSH10x15x20x25x30x35x40xImplied PT MultipleSource: Bloomberg, J.P Morgan estimates.Table 12: IT Services/BPO: 2020 PT and Upside PotentialCurrent Price Dec20 Price % upside from Implied PT Current NTM 1 year LT gro

17、wth Earnings Target current levels Multiple (CY21 multiple average profile growthEPS)(2019-2021)Source: J.P. Morgan, Bloomberg. Note: Current multiple as of 8/13/18.ACN192.8821914%25.025.122.98%9%CNDT6.60821%11.012.813.16%5%CTSH61.74667%14.014.915.57%9%DXC34.094532%5.04.57.78%12%EXLS68.007510%20.022

18、.220.410%13%G41.004612%18.019.316.610%12%GLOB105.4111913%36.043.433.917%23%IBM135.7915210%10.510.69.88%6%VRTU33.304947%14.011.818.514%26%WNS62.797316%21.021.719.810%10%Accenture plcOverweightCompany DataYear-end Aug ($)FY17AFY18AFY19EFY20EFY21EShares O/S (mn)649Revenue ($ mn)34,85039,57343,28546,365

19、49,46752-week range ($)197.47-Adj. EBIT ($ mn)5,1425,8416,3136,8207,339132.63EBIT margin14.8%14.8%14.6%14.7%14.8%Market cap ($ mn)121,375.40EBITDA margin17.1%17.1%16.7%17.1%17.2%Exchange rate1.00Adj. EPS ($)5.916.747.317.888.59Free float(%)99.8%BBG EPS ($)5.906.727.347.998.713M - Avg daily vol (mn)1

20、.78Reported EPS ($)5.916.747.317.888.593M - Avg daily val ($330.6Dividend yield1.3%1.4%1.6%1.7%1.9%mn)Adj. P/E31.627.825.623.721.8Volatility (90 Day)16P/ BV13.811.88.58.37.5Accenture plc (ACN;ACN US)S&P 500 161713IndexBBG BUYIHOLDISELLSource: Company data, Bloomberg, J.P. Morgan estimates. Bloomberg

21、 above denotes Bloomberg consensus estimates.Investment Thesis, Valuation and RisksAccenture plc (Overweight; Price Target: $219.00)Investment ThesisWe rate ACN shares Overweight as we believe the company is a premium IT services firm with an attractive FCF yield.ACN has the most diversified busines

22、s in the IT services space. We like ACN for diversification in terms of its regional, vertical, and services revenue mix. The company has around 70% of its head count in low-cost locations, among the highest in legacy IT services firms. Moreover, the company has a solid and tenured management team.C

23、ustomer relationships and domain expertise set ACN apart from its peers. The company wins much of its business on a sole-sourced basis, indicating the strength of its C-Suite“ relationships. The company, through its consulting practice, has a significant body of knowledge on clients, domain and proc

24、esses, which helps it stay closer to clients. ACN has 19() clients contributing more than $l()0M in annual revenue.With an attractive free cash flow profile, we believe ACN stock offers an attractive defensive opportunity. ACN has a high cash generating business model一the company trades at 6% 2018E

25、FCF vs. peers at 4%. We believe a diversified business, coupled with buybacks and dividends, makes ACN relatively defensive in the event of macro deterioration.ValuationWe are raising our PT from $194 (Dec119) to $219 (Dec,20) as we roll forward our PT by a year.Our ACN price target of $219 applies

26、a 25x multiple to our CY21E EPS of $8.77. ACN is currently trading at 24x our CY20E EPS while peers are trading at 17x. Over the last year, ACN has traded at a 13.5% premium relative to its peers on NTM P/E.We estimate ACN earnings will grow at 8.1% over the next two years (2019-21) and our price ta

27、rget implies a 210.3% premium to the earnings CAGR.Risks to Rating and Price TargetWe see four key risks to our Overweight rating: A deteriorating IT spending environment could reduce demand for ACNs services. M&A execution must remain sharp, as negative surprises could impair the firms ability to c

28、ontinue to get credit for future M&A. Competitive pricing potentially exacerbated by offshore outsourcing trend could pressure margins. Major outsourcing contracts could perform below expectations, adversely impacting results or sentiment. The ability to attract, retain, and motivate talent could fa

29、ll short, adversely impacting client satisfaction and results.Accenture plc: Summary of FinancialsIncome Statement - AnnualRevenueCOGSGross profitSG&AAdj. EBITDAD&AAdj. EBITNet InterestAdj. PBTTaxMinority InterestAdj. Net IncomeReported EPSAdj. EPS DPSPayout ratioShares outstandingBalance Sheet & Ca

30、sh Flow StatementCash and cash equivalentsAccounts receivableInventoriesOther current assetsCurrent assetsPP&ELT investmentsOther non current assetsTotal assetsShort term borrowingsPayablesOther short term liabilitiesCurrent liabilitiesLong-term debtOther long term liabilitiesTotal liabilitiesShareh

31、olders equityMinority interestsTotal liabilities & equityBVPSy/y GrowthNet debt/(cash)Cash flow from operating activitieso/w Depreciation & amortizationo/w Changes in working capitalCash flow from investing activitieso/w Capital expenditure as % of salesCash flow from financing activitieso/w Dividen

32、ds paido/w Net debt issued/(repaid)Net change in cashAdj. Free cash flow to firmy/y Groh34,85039,57343,28546,36549,467(23,820)(27,131)(29,978)(32,136)(34,298)3,05212,44313,30714,23015,169(5,888)(6,602)(6,993)(7,409)(7.830)5,9446,7687,2337,9338,526(802)(927)(920)(1.113)(1.187)5,1425,8416,3136,8207,33

33、922376169895,1265,8086,2576,7907,328(1.179)(1.335)(1.444)(1.630)(1.759)(41)(60)(62)(71)(77)3,9064,4144,7505,0895,4935.916.747.317.888.595.916.747.317.888.592.372.612.923.213.5340.1%38.7%40.0%40.8%41.1%660655650646639FY17AFY18AFY19EFY20EFY21E4,1265,0614,6905,7937,2354,5694,9968,4369,18110,1973,4023,5

34、281,9861,3381,39212,09713,58615,11216,31218,8251,1411,2641,1569487252122162352352359,2409,38412,48011,91211,40022,69024,44928,98429,40731,185FY17AFY18AFY19EFY20EFY21E3 5 6 4 22 9 2 25 2 8& a?3 0 9 13 8 4 673 z cd96 z255工1819.(4,973802啊34)16)5%60)网2114503%4,98 依2,2e3,51.5e4,49/ / - /9 8 2 04 9 5 23 7

35、 JL & a9 8 2 08 0 0 2 s ?Qv 16 5 5 01- 7 9 2oq F 11 113 4 5 05 2 6 65 7 3 33 Off Q8 9 9 67 9 7 02 2 2 4 a 4 40 2 7 02 4 5 43 4 41 di9.4424.4弘 3 & 22 8 1691285 z27%16.% 8 & 363 o (5,嚅3SX110ss967(511 6 44 5 23 on 9 erf 4 trf06431.9124.4%w.8220m 期外。gdjh-65 089277927616563 O5.53a 仲q7313可切切)%9 勺 00325% 6

36、71179957710925E J 766 工 80 4176 1 ( ( 4- 9. 15 6 /l /432879 44 % 御助 04333 189044,505254443a 1 6,777%6 oaSource: Company reports and J.P. Morgan estimates.Note: $ in millions (except per-share data).Fiscal year ends Aug. o/w - out of whichIncome Statement - Quarterly RevenueCOGSGross profitSG&AAdj. E

37、BITDAD&AAdj. EBITNet InterestAdj. PBTTaxMinority InterestAdj. Net IncomeReported EPSAdj. EPS DPSPayout ratioShares outstandingRatio AnalysisGross marginEBITDA marginEBIT margin Net profit marginROEROAROCESG&A/SalesNet debt/equityP/E (x)P/BV (x)EV/EBITDA (x)Dividend YieldSales/Assets (x)Interest cove

38、r (x) Operating leverageRevenue y/y GrowthEBITDA y/y GrowthTax rateAdj. Net Income y/y GrowthEPS y/y GrowthDPS y/y Growth10,606A 10,454A 11,100A11,126(7,308)A (7,400)A (7,571 )A亿699)3.297A3,054A3,528A3,427(1,668)A (1,668)A (1,810)A(1,847)1,841 A1,606A1,939A1,847(212)A(220)A(221 )A(267)1,629A1,387A1,

39、718A1,58015A13A16A161,610A1,376A1,704A1,566(319)A(236)A(436)A(454)(15)A(15)A(17)A(15)1,277A1,126A1,251 A1,0971.96A1.73A1.93A1.691.96A1.73 A1.93A1.691.46AO.OOA1.46A0.0074.6%A0.0%A75.8%A0.0%652A649A649A650FY17AFY18AFY19EFY20EFY2隹8.8%31.4%30.7%30.7%30.7%17.1%17.1%16.7%17.1%17.2%14.8%14.8%14.6%14.7%14.8

40、%11.2%11.2%11.0%11.0%11.1%1Q19A 2Q19A 3Q19A 4Q19E% %3 oL 84 145,18.46.7%7%5%7%8% % %6 8 3&7,9.3 13% % % % 3 4 9 6 S7.5.3 13% % % % 力5 oq 6 8 6 s 3 1 3 131.627.825.623.721.813.811.88.58.37.520.517.816.715.113.91.3%1.4%1.6%1.7%1.9%1.61.71.61.61.6NMNMNMNMNM115.3%100.3%86.2%112.8%113.6% % % % % %6 。O 3.

41、C63.C63.91 1 2 1 1% % % % % % 4 6 5 O9.& C67.& z2 1% % % % % % 17 0 19 07.9.4.7,7.S2 17%5%0%9%0%0%UnderweightShares O/S (mn)56452-week range ($)78.59-56.73Market cap ($ mn)34,206.60Exchange rate1.00Free float(%)99.6%3M - Avg daily vol (mn)5.023M - Avg daily val ($312.9mn)Volatility (90 Day)32IndexS&

42、P 500BBG BUYIHOLDISELL8I20I3Company Data 一CognizantYear-end Dec ($)FY17AFY18AFY19EFY20EFY2隹Revenue ($ mn)14,81016,12516,69317,32918,132Adj. EBIT ($ mn)2,9122,9202,8373,0833,229EBIT margin19.7%18.1%17.0%17.8%17.8%EBITDA margin21.5%21.0%20.0%20.9%21.0%Adj. EPS ($)3.794.013.964.404.72BBG EPS ($)3.714.5

43、13.944.284.75Reported EPS ($)2.533.603.724.404.72Dividend yield-Adj. P/E16.015.115.313.812.8P/ BV3.23.12.92.52.2Cognizant Technology Solutions (CTSH;CTSH US)Source: Company data, Bloomberg, J.P. Morgan estimates.Investment Thesis, Valuation and RisksCognizant Technology Solutions (Underweight; Price

44、 Target: $66.00)Investment ThesisWe rate CTSH shares Underweight. CTSH is underperforming its offshore peers in topline growth, which along with high uncertainty over the medium term, result in unfavorable risk/reward profile. CTSH also needs to transition to a digital-focused company, which could weigh on near-term results. Cutting costs to expand margins while also accelerating revenue growth is relatively difficult to achieve, specifically fbr the company of CTSHssize.Valuat