Wells Fargo Securities' IT/BPO Services Weekly

Transcription

December 19, 2014
Equity Research
ACN Reports Better FQ1, Tone Positive, Guide Improved Excluding FX
Happy Holidays to All; Next Major Earnings Infosys January 9
• THOUGHT OF THE WEEK. Leading global IT and outsourcing services
provider Accenture (ACN) reported better than expected FQ1 (November) results,
offered a positive business tone, and raised (before FX impact) revenue and EPS
expectations for FY15. While there were signs that ACN results were turning the
corner last quarter, this “print” certainly suggests that the tide has shifted after an
extended period of resetting its business offerings. This suggests to us that we
may be entering a period of potential for positive revisions, which should help the
share price. Separately, in regard to the sharp decline oil prices, ACN’s CEO
indicated that clients are in a “watching” mode and have not changed their IT
spending plans at this time.
IT & BPO Services
• COMING EVENTS – INFY. The holiday season dominates the next two weeks
with the next major earnings release coming from India-centric IT services
provider Infosys (INFY) on Friday (early AM U.S.-Eastern) January 9th. The
quarter should be interesting in the wake of the relatively cautious pre-quietperiod commentary from the largest India-centric provider Tata Consultancy
(TCS, trades in India) on December 12th. Has the relative business momentum
enjoyed by TCS the last few years faded, or is this a market headwind for all?
Given ACN’s recent report, the jury is definitely still out. More importantly,
investors are primarily interested in the margin impact from new initiatives
highlighted by INFY CEO Sikka at the December 4th analyst day and prior to that,
but that will not be quantified until the FQ4 call in April. Given the way the yearend holidays fall, our next “weekly” services newsletter will come in the new year.
• HIGHLIGHTS OF THE WEEK – IT Services – ACN, Atos-XRX.
Accenture (ACN) reported FQ1 (November) revenue that was up 10% in local
currency, and raised the FY15 (August) local currency revenue growth expectation
a point to 5-8%. The recent strength in the U.S. dollar took away that
fundamental improvement and then some. Other FY15 targets where held
including for operating margin and bookings (despite higher FX headwind).
Xerox (XRX) is selling its IT outsourcing business to European provider Atos for
$1.05 billion, focusing its services business offerings on process outsourcing
(BPO) and document outsourcing (DO). The ITO business’s estimated 2014
revenue was $1.5 billion and it represented about 13% of prior Services revenue at
XRX.
Please see page 8 for rating definitions, important disclosures
and required analyst certifications
All estimates/forecasts are as of 12/19/14 unless otherwise stated.
Wells Fargo Securities, LLC does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of the
report and investors should consider this report as only a single factor in
making their investment decision.
Ed Caso, CFA, Senior Analyst
( 4 43 ) 2 6 3- 6 5 2 4
e dw a rd. ca s o@ we ll sf argo. co m
Richard Eskelsen, CFA, Associate Analyst
( 41 0 ) 6 25 - 6 38 1
ri c h a r d. e sk e ls en @ we ll s f a rg o . c o m
Tyler Scott, Associate Analyst
( 4 43 ) 2 6 3 - 6 5 4 0
tyl e r. scot t@w el l sfa rgo .com
WELLS FARGO SECURITIES, LLC
EQUITY RESEARCH DEPARTMENT
IT & BPO Services
•
Thursday
Price Performance
Ret u r n s
YT D
6-Mt h s
Pr i ce
12/18/14
Fr om
Hi
Fr om
Low
1-Wk
1-Mt h
IT Ser v i ce Pr ov i der s
A ccen t u r e
CGI Gr ou p, In c.
Com pu t er Scien ces Cor p.
$8 9 .7 4
3 7 .1 8
6 3 .7 2
0 .0 %
0 .0
-3 .8
- 1 8 .7 %
- 2 5 .3
- 1 9 .3
7 .0 %
3 .9
2 .0
6 .5 %
1 .2
2 .7
9%
11
14
Cog n iza n t
IGA T E Cor p.
In fosy s Lim it ed
Sy n t el, In c.
W ipr o Lim it ed
$5 3 .4 5
3 7 .5 6
3 2 .5 5
4 5 .9 1
1 1 .8 8
-1 .9
-7 .7
-6 .8
-5 .1
-1 6 .2
-
2 3 .4
2 9 .0
2 8 .3
1 7 .7
9 .3
3 .8
8 .8
2 .8
1 .1
1 .7
1 .3
4 .6
-3 .3
4 .3
-4 .5
On A ssig n m en t , In c
Sa pien t Cor p.
Bu si n ess Pr ocess Ou t sou r ci n g
Ex lSer v ice Holdin g , In c.
Gen pa ct Lim it ed
W NS Holdin g s, In c.
3 2 .0 3
2 4 .8 2
-1 7 .7
-0 .2
- 2 1 .4
- 7 7 .3
0 .7
0 .0
2 7 .8 3
1 9 .0 4
2 0 .9 9
-1 0 .3
0 .0
-6 .8
- 1 4 .2
- 3 3 .3
- 2 1 .3
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-4 2 .3
-
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8 5 .9 3
4 1 .6 8
4 3 .5 2
2 9 .7 0
1 0 .1 2
5 0 .4 8
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2 7 ,1 2 6 .5 7
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- 1 8 .8 0
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Com pa n y
Per for m a n t Fin a n cia l
Gov er n m en t Ser v i ces
Booz A llen Ha m ilt on
CA CI In t er n a t ion a l
ICF In t er n a t ion a l In c.
Leidos Holdin g s, In c.
Ma n t ech In t er n a t ion a l
NCI, In c.
SA IC In c.
1-Y
5-Yr s T i cker
8%
9
0
1 9%
7
19
1 1 7 % A CN
1 7 9 GIB
14
CSC
6
-6
15
1
-6
8
10
19
10
2
11
1
16
2
-1
140
27 7
19
145
-1 3
CT SH
IGT E
INFY
SY NT
W IT
4 .7
0 .7
-8
43
-1 1
49
-1
47
354
2 01
A SGN
SA PE
-1 .5
2 .3
0 .3
0 .2
6 .3
6 .1
1
4
-4
-5
10
11
3
9
2
57
33
39
EX LS
G
W NS
6 .7
3 .7
-7 .0
-3 7
-3 4
-3 6
NA
PFMT
4 4 .0
2 5 .8
3 7 .0
3 1 .0
1 1 .7
6 5 .1
6 3 .2
-4 .8
-2 .3
6 .3
1 .3
1 .1
-1 5 .0
-3 .2
-3 .3
1 .1
9 .6
8 .7
0 .9
-1 3 .5
2 .1
33
17
20
-6
-1
53
53
-3
22
15
13
1
4
15
44
20
19
-2
3
61
63
NA
80
56
-4 2
-3 5
-6 2
NA
BA H
CA CI
ICFI
LDOS
MA NT
NCIT
SA IC
1 .3
0 .9
-1 .7
0 .5
1 .0
-3 .7
12
14
28
5
9
8
14
17
30
87
115
62
S&P5 0 0
COMP
SENSEX
In di ces
S&P 5 0 0
NA SDA Q Com posit e In dex
BSE SENSEX
Ou t per for m ed S&P 5 0 0
Not e: A s of T h u r sda y 's Close
Sou r ce: Fa ct Set a n d Wel l s Fa r go Secu r i t i es, LLC
2
RESEARCH COMMENTS – IT Services
Accenture (ACN, Outperform, $90.36)
FQ1 Rev/EPS Better; Growth Broad-based
Digital Growth +20%
FY15 Revenue/EPS Outlook Increased Before FX Headwinds
FQ1 (Nov) Results Better All Around; Bookings Light,
But In-line With Management Expectations; Better
Visibility Allows for Increase in Local Currency (lc)
Revenue and EPS Guidance, But Stronger FX Headwind
More Than Offsets; Tone Positive and FY15 LC Targets
Raised. FQ1 revenue of $7.9bn and EPS of $1.29 were better
than expected on broad-based growth across geographies and
verticals. Four of five operating units grew in the teens with
challenged Resources vertical growth still positive and expected
to remain so. Growth in “digital” offerings (20% plus) and key
European countries called out as was Apps Services (which
includes some ERP revenue). Unchanged FY15 bookings guide of
$34-36bn would have increased but for the FX headwind, and
pipeline indicated as strong. Energy clients (about 6% of
revenue) indicated as still in a “watching” mode. FY15 revenue
local currency (lc) growth raised a point. In our view, the
management tone was as positive as we have heard in years.
Our EPS Estimate Revisions. Reflects better than expected
FQ1, incrementally more positive tone (in our view), offset by
sharply higher FX headwind. FY15E to $4.78 from $4.81, FY16E
unchanged at $5.22 and initial FY17 estimate is $5.82.
Rating. Our valuation range increased to $96-98 (20x our FX
impacted CY15 EPS estimate) from $87-90. We reiterate our
Outperform investment rating, but note the shares appear more
attractive on a “relative” than “absolute” P/E basis.
FY2015 Guidance – Local Currency Revenue and EPS
Raised, FX Then More Than Offsets. Local currency (lc)
revenue growth now expected to be 5-8% (0-3% reported USD)
versus prior guidance of 4-7% (2-5% reported USD). EPS
guidance lowered to $4.66-4.80 from prior guidance of $4.744.88 due to unfavorable FX. Excluding FX change, FY15 EPS
would have been up $0.06. Our/Street prior estimates were
$4.81/$4.82. All other guidance was unchanged.
FQ1 Results – Better Than Expected. Revenue of $7.9bn
increased 7% y/y (10% lc) which was better than our/Street
estimates of $7.70bn/$7.71bn. Consulting revenue (52% of total)
grew 7% lc while Outsourcing revenue (48% of total) grew 14%
lc. Bookings were $7.7bn (0.97x book-to-bill), light versus our
estimate of $8.2bn. EPS of $1.29 was also better versus
our/Street estimates of $1.17/$1.20.
Our Thoughts From the Conference Call
Analyst Question Focus. 1) Bookings duration/level, 2)
Lower gross margin.
EPS & FX. FY2015 guidance range reduced by $0.08 top and
bottom, but would have been raised by $0.06 if not for the $0.14
FX impact.
Gross Margin & Operating Margin. Management indicated
that ''contract profitability'' has improved. Company focus
remains on managing to 10-30 basis point improvement in
operating margin annually. We were reminded that gross margin
includes recruiting/training costs and that ACN did not see
downtrend in gross margin as an impediment to achieving its
operating margin goal.
Revenue. Upside to outlook was broad based by vertical and
geography. ''Digital'', ''Operations'' and ''Apps Services'' were all
indicated as strong. The Digital business grew +20% in FQ1.
Europe was indicated as particularly strong, especially in
traditional markets of Germany, France and Italy. Norway also
grew double digits.
Application services indicated as ''strong'' but did not offer a
growth rate range. This suggests to us that ACN may be gaining
share relative to Tier I India-based providers given recent muted
commentary from Tata Consultancy. We also believe ACN is
benefitting from strong European positioning, as management
indicated European client interest rising in Apps.
Pricing. ''Stable with strength in some areas.'' We viewed this
as (slightly) relatively more positive.
Bookings. FQ1 down consistent with analyst day commentary.
FY2015 of $34-36bn unchanged despite higher FX headwind
suggesting local currency improvement. Duration (annual
contract value) also shortened helping with near-term revenue
visibility. Management was also positive on pipeline.
Acquisition Benefit. FY2015 guide for a 1.0-1.5% contribution
which is unchanged. FQ1 was in that range.
Cash Flow. Bonus payments historically paid in FH1, but will
be more FQ2 weighted this year. FH1 cash flow will still benefit
by about $300mm for reduced FY2014 bonus accrual.
M&A / CAPITAL MARKETS ACTIVITY
- Atos announced its intention to purchase Xerox’s (XRX) IT
outsourcing (ITO) business for $1.05 billion. As part of the
transaction, Atos will also become XRX’s primary IT services
provider. XRX’s ITO business has annual revenue of about $1.5
billion (~5% of XRX total revenue and about 13% of total
services revenue), around 4,500 employees which includes
approximately 3,800 employees in India, the Philippines and
Mexico. The transaction is expected to close in the first half of
2015. After-tax proceeds are expected to be approximately $850
million. Additionally, XRX is increasing capital allocation for
share repurchases in 2015 to $1.0 billion and for acquisitions up
to $900 million. Given the unit sale, XRX lowered their 2015
GAAP EPS (continuing operations) guidance to $0.88-0.94 from
$1.05-1.11.
- Fitch Ratings affirmed all credit ratings for Accenture (ACN)
including the long-term Issuer Default Rating (IDR) of A+. Fitch
also maintained a stable outlook for the company. The rating
impacts about $1 billion of ACN’s undrawn credit facility.
- Ciber (CBR) authorized a $10 million share repurchase
program. There was not previously a share repurchase program
in place. The authorization has no expiration date.
- Perficient (PRFT) entered into an agreement to acquire the
assets of Zeon Solutions, including its subsidiary Grand River
Interactive and an Indian affiliate, for $35.7 million. The
purchase price includes $22.3 million in cash and $13.4 million
in PRFT stock. Zeon has annual revenue of about $23 million.
The acquisition is expected to be accretive to adjusted EPS and
close in early January 2015.
3
IT & BPO Services
GOVERNMENT – Other News
(as of Thursday’s close)
1 Week Price Change
KEYW
8%
ICFI
7%
KTOS
7%
MMS
5%
S&P500
3%
MANT
3%
EGL
2%
LDOS
2%
Group Average
2%
CACI
1%
SAIC
0%
BAH
(0%)
NCIT
(13%)
YTD Price Change
NCIT
53%
SAIC
53%
BAH
33%
EGL
22%
MMS
22%
ICFI
20%
CACI
17%
S&P500
12%
Group Average
10%
MANT
(1%)
LDOS
(6%)
KEYW
(26%)
KTOS
(36%)
Source: FactSet
Contract Announcements
Value
($MM)
Company
Client
Details
CACI-Athena Special Ops Provide geospatial analytical support
$38.4
Command
services
Army
DynCorp
Contract modification; aviation maintenance
42.9
support
DLA
SAIC
3-month bridge; provide maintenance,
23.0
repair and operations support
DLA = Defense Logistics Agency
B=base year; O=optional year, MA=multiple award, TCV=total contract value,
IDIQ=indefinite delivery, indefinite quantity, BOA=basic ordering agreement,
BPA=blanket purchase agreement
Source: Company information or government disclosures
- Federal News Radio reported the President signed the $1.1
trillion “CRomnibus” bill passed by the House last week and the
Senate over the weekend. The bill funds all agencies, with the
exception of the Department of Homeland Security (DHS)
through the end of GFY2015. DHS will be funded through
February 27. The bill provides the Department of Defense (DoD)
a base budget of about $490.1 billion, which is $3.3 billion larger
than GFY14. It also provides $64 billion for overseas
contingency operations (OCO) or “in-theatre” operations which
is $21 billion lower than GFY14 given the Afghanistan troop
reductions.
- Nextgov reported the Office of Personnel Management (OPM)
is in the process of notifying 48,439 federal employees that their
personal information may have been compromised following a
security breach at KeyPoint Government Solutions.
KeyPoint conducts background investigations of federal
employees seeking security clearances under a contract with
OPM. OPM has indicated there is not yet conclusive evidence
that personal information was stolen, but has notified employees
out of caution. Employees impacted by the breach will receive
free credit monitoring. Over the summer USIS, a former
contractor on the same OPM contract, indicated its systems had
been breached. OPM subsequently suspended work with USIS
and later chose not to renew an option year on its contract.
- The Government Accountability Office (GAO) partially
sustained a protest filed by CGI Group (GIBa, Market Perform,
$43.07) over a contract awarded by the Department of the Navy,
Space and Naval Warfare Research Center (SPAWAR) to five
other contractors for the production of build-to-print network
4
systems to be installed in Navy ships. GIBa argued that the
agency failed to amend its price evaluation despite knowing the
agency requirements had changed. GIBa also alleged the agency
did not properly evaluate bids. The GAO ruled GIBa’s argument
over its past performance price evaluation was without merit but
did recommend the agency amend the bid to reflect its actual
ordering needs and allow bidders to resubmit their prices. The
GAO also recommended that the agency reimburse GIBa for
costs related to filing the protest.
Global Delivery – Other News
1 Week Price Change
IGTE
11%
WIT
6%
G
6%
CTSH
6%
INFY
4%
SYNT
4%
Group Average
3%
S&P500
3%
WNS
2%
EXLS
0%
VRTU
(0%)
SENSEX
(2%)
EPAM
(5%)
YTD Price Change
EPAM
38%
SENSEX
28%
INFY
15%
S&P500
12%
VRTU
6%
CTSH
6%
Group Average
5%
G
4%
SYNT
1%
EXLS
1%
WNS
(4%)
WIT
(6%)
IGTE
(6%)
Source: FactSet
Offshore: Local Prices (12/12– 12/19)
Local Shares
INFOSYS-BOM
HCL-BOM
TCS-BOM
WIPRO-BOM
TECHMAH-BOM
Period
2%
(0%)
(1%)
(2%)
(2%)
YTD
13%
23%
13%
(4%)
39%
Indices
BSE IT
SENSEX
Period YTD
3%
16%
(2%)
28%
Source: Bombay Stock Exchange Limited, FactSet
Foreign Exchange Rate Watch
Indian Rupee
Philippine Peso
Close (per 1 USD)
Full-year – 2009
Full-year – 2010
Full-year – 2011
Full-year – 2012
Full-year – 2013
62.33
+ 4.5%
+ 3.9%
- 18.8%
- 3.2%
- 12.9%
44.74
+ 2.8%
+ 5.2%
+ 0.1%
+ 6.4%
- 8.1%
Year-to-date – 2014
Quarter-to-date
Over the past week
- 2.1%
- 2.2%
- 1.3%
- 0.8%
+ 0.3%
- 0.6%
Definitions: ‘+’ = appreciated; ‘-‘ = depreciated
Source: FactSet
70
70
Indian Rupee
Philippine Peso
65
65
60
60
55
55
50
50
45
45
40
40
35
Sep-13
35
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
British Pound
Euro
1.8
1.8
1.7
1.7
1.6
1.6
1.5
1.5
1.4
1.4
1.3
1.3
1.2
Sep-13
1.2
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Source: FactSet
- The Economic Times reported Wipro (WIT) is spending over
$200 million annually to build out its next-generation
technology platforms including automation tools and machine to
machine learning systems. According to Chief Technology
Officer KR Sanjiv, the company has invested heavily over the last
several years and indicated WIT plans to continue to invest more
than the industry average in these initiatives moving forward.
- The Economic Times reported Tata Consultancy Services
(TCS) is targeting $1 billion in annual revenue from France
within the next five-years, according to a presentation from
Krishnan Ramanujam, global head and VP of enterprise
solutions to industry analysts in Paris. Mr. Ramanujam
indicated the company also plans to step up recruiting of
graduates and increase its employee base in France which
currently stands at 1,400.
- WNS Holdings (WNS, Outperform, $21.00) signed a
partnership agreement with Commercial Bank of Dubai (COB) in
the United Arab Emirates (UAE). WNS will initially manage
back office operations for CBD’s Trade Finance and Credit
processing business in connection with the partnership.
Financial terms of the agreement were not provided.
- Courthouse News Service reported Computer Sciences
(CSC, Market Perform, $64.22) was ordered to pay five former
employees over $350,000 in back pay related to work performed
overseas while working on a defense contract. The plaintiffs
argued they were entitled to hourly wages for hours worked
while CSC argued they were due an annual salary based on their
hourly wage. The former employees argued CSC denied them
overtime wages while they worked up to 84 hours a week
between September 2010 and June 2012. They also alleged they
were directed to only record 12 hours of work per day on their
time sheets and that supervisors would change their time sheets
if they recorded more. A spokesperson for CSC indicated the
company plans to file an appeal.
- CGI Group (GIBa) announced Canadian Payments
Association (CPA) has renewed its IT infrastructure services
contract for an additional five years plus a two-year extension
option. CPA has been a GIBa client for 22 years. Financial terms
of the deal were not provided.
- CGI Group (GIBa) announced PostNord renewed its payroll
outsourcing contract for five years plus a two-year extension
option. GIBa will continue to manage payroll processes for
PostNord’s 26,000 employees across its Swedish operations.
Financial terms of the deal were not provided.
- CGI Group (GIBa) signed a five year, EUR 22 million ($27
million) IT outsourcing contract with the City of Vantaa in
Finland. Under the terms of the contract, GIBa will take
responsibility of the city’s information systems, servers and
workstations as well as support around 11,000 end users. An
undisclosed number of Vantaa employees will also join GIBa as
part of the agreement. The contract begins January 1, 2015.
- Computerworld UK reported the UK Department of Health is
expected to award IBM (IBM) a contract worth up to GBP 400
million ($628 million) to support the National Health Service
(NHS) electronic staff record (ESR) system. IBM has already
been named a preferred bidder and is expected to take the
contract over from the current provider McKesson next summer.
Reportedly IBM beat out bids from Computer Sciences (CSC)
and Steria after McKesson withdrew its bid.
- Maximus (MMS) was awarded two new regions (North East
Yorkshire and the Humber) on a contract with the United
Kingdom Department for Work and Pensions (DWP). MMS will
help unemployed individuals seek long-term employment and
transition off welfare. The value of the work with the new regions
is between $10-14 million. Work begins February 2, 2015.
IT Services – Other News
STAFFING – Other News
1 Week Price Change
UIS
ACN
GIB
PFMT
Group Average
HPQ
CSC
ADP
XRX
S&P500
IBM
SAPE
Source: FactSet
12%
10%
6%
5%
5%
5%
4%
4%
3%
3%
1%
(0%)
YTD Price Change
SAPE
HPQ
XRX
CSC
S&P500
GIB
ACN
Group Average
ADP
IBM
UIS
PFMT
43%
42%
14%
14%
12%
11%
9%
7%
6%
(16%)
(17%)
(37%)
1 Week Price Change
MAN
KELYA
TBI
RHI
CDI
Group Average
S&P500
ASGN
RECN
KFRC
Source: FactSet
5%
5%
4%
4%
3%
3%
3%
2%
1%
1%
YTD Price Change
RHI
KFRC
S&P500
RECN
Group Average
CDI
ASGN
TBI
MAN
KELYA
40%
16%
12%
7%
(3%)
(6%)
(8%)
(17%)
(21%)
(34%)
5
IT & BPO Services
Noteworthy
- American Systems announced its CFO Mark Danisewicz
intends to retire mid-summer 2015. Mr. Danisewicz has spent 35
years with the company. American Systems indicated the
company will begin a search for his replacement in January.
- Unisys (UIS) appointed Peter Altabef as President and CEO,
effective January 1, 2015. Mr. Altabef previously served as CEO
of Perot Systems and MICROS Systems. He has also served as
President of Dell Services.
EARNINGS RESULTS: 12/15 – 12/19
Ticker
ACN
9/13
Actual
$1.13
9/14
Actual
$1.29
%
Change
14%
Street
Estimate
$1.20
Above/
Below
$0.09
Source: Company data, Thomson Financial, FactSet Research Systems
UPCOMING INDUSTRY EVENTS
Event
Date
Location/Info.
NASSCOM Leadership Conference
Feb. 1113, 2015
Mumbai, India
2015 IAOP Outsourcing Summit
Feb. 1618, 2015
Phoenix, AZ
IBM Investor Briefing
Feb. 26
New York, NY
19th Annual N. American Shared
Services & Outsourcing Week
Mar. 912, 2015
Champions Gate, FL
Source: Company information
6
7
($ in billions)
Price
Rating 12/19/14
52 wk
Low
High
Mkt.
Cap.
(Basic)
Enter.
Value (EV)
(Basic)
Rev. Growth
CY14E CY15E
Net Debt /
TTM
EBITDA
Op. Margin
CY14E CY15E
P/E
CY14E CY15E
EV/
EBITDA
CY14E
CY15E
EV/
Revenue
Yield
Div.
CY14E CY15E
FCF
TTM
Yield
Ticker
IT Service Providers
Accenture
1
$90.36
22%
(1%)
$59.3
$55.4
6%
1%
14.4%
14.5%
CGI Group, Inc.
2
43.07
47%
15%
13.5
15.6
3%
3%
12.3%
13.5%
Computer Sciences Corp.
2
64.22
21%
(4%)
9.0
9.9
(2%)
1%
8.6%
8.9%
Cognizant
1
53.39
29%
(2%)
32.5
30.6
15%
21%
18.2%
16.8%
IGATE Corp.
2
37.64
32%
(12%)
2.2
3.1
10%
12%
18.1%
18.3%
Infosys Limited
2
32.52
30%
(8%)
18.6
13.4
7%
8%
25.4%
24.4%
Syntel Inc.
1
45.83
20%
(6%)
3.8
3.2
10%
10%
28.4%
28.5%
Wipro Limited
2
11.81
9%
(17%)
29.1
27.2
10%
8%
20.9%
20.9%
On Assignment, Inc.
1
31.96
23%
(20%)
1.7
2.0
14%
8%
7.6%
8.1%
Sapient Corporation
2
24.82
93%
(0%)
3.5
3.2
13%
13%
9.1%
10.9%
G
P
G
0.0x
19x
19x
11.0x
10.8x
1.8x
1.8x
7%
2.3%
ACN
1.5
15
13
8.5
8.4
1.5
1.4
6%
NA
GIB.A
1.3
14
13
4.5
4.5
0.8
0.8
8%
1.4%
CSC
G
P
G
G
G
0.5
21
18
14.9
12.7
3.0
2.5
4%
NA
CTSH
2.1
19
16
10.9
9.7
2.4
2.2
1%
NA
IGTE
0.0
19
18
5.6
5.5
1.5
1.4
10%
3.7%
INFY
0.5
16
16
11.5
10.5
3.5
3.2
6%
NA
SYNT
0.5
20
20
15.1
14.5
3.6
3.3
4%
1.1%
WIT
P
G
2.0
16
14
10.3
9.4
1.1
1.0
5%
NA
ASGN
0.0
42
32
17.3
14.5
2.2
2.0
2%
NA
SAPE
0.0
2.6
16
18
14
16
9.6
13.0
8.4
12.1
1.4
2.0
1.3
1.8
6%
5%
NA
NA
EXLS
G
0.7
13
13
10.4
9.7
2.0
1.8
6%
NA
WNS
1.8
1.6
11%
NA
PFMT
Business Process Outsourcing
ExlService Holdings, Inc.
Genpact Limited
2
2
27.75
18.99
15%
39%
(11%)
(0%)
0.9
4.1
0.7
4.5
8%
7%
9%
8%
15.0%
15.2%
15.7%
15.1%
WNS Holdings, Inc.
1
21.00
23%
(9%)
1.1
1.0
9%
11%
19.1%
18.4%
P
P
P
Performant Financial Corp
2
6.50
9%
(44%)
0.3
0.3
(24%)
10%
15.0%
18.9%
P
1.9
20
14
7.7
6.0
Booz Allen Hamilton
3
25.43
48%
(9%)
3.8
5.1
(6%)
1%
8.4%
8.4%
16
17
10.0
10.0
1.0
10%
1.7%
BAH
3
86.45
29%
(6%)
2.1
3.2
(4%)
0%
6.7%
7.4%
3.7
18
16
10.5
9.7
0.9
0.9
13%
NA
CACI
ICF International, Inc.
2
41.75
38%
(6%)
0.8
0.9
11%
18%
6.9%
7.9%
G
G
G
P
G
G
G
3.2
CACI International
1.3
19
15
9.5
6.9
0.9
0.7
5%
NA
ICFI
2.9
19
17
9.9
9.4
0.8
0.8
11%
2.9%
LDOS
0.0
23
19
8.1
8.1
0.6
0.6
15%
2.9%
MANT
0.0
1.9
15
18
17
16
5.6
10.1
5.5
9.8
0.4
0.7
0.4
0.7
16%
12%
NA
2.2%
NCIT
SAIC
Government Services
Leidos Holdings, Inc.
3
43.62
37%
(10%)
3.2
4.0
(12%)
(2%)
6.7%
7.3%
ManTech International
3
29.06
11%
(7%)
1.1
1.0
(22%)
0%
5.3%
5.3%
NCI, Inc.
SAIC, Inc.
3
2
10.13
50.72
68%
68%
(23%)
(4%)
0.1
2.4
0.1
2.6
(5%)
(5%)
(2%)
2%
4.5%
6.2%
4.8%
6.3%
2062.94
19%
(1%)
S&P500
1.0
Wells Fargo Securities, LLC Equity Research
IT/BPO Services
Summary Valuation For Followed Universe
SPX
CGI Group (GIB) estimates and price are in Canadian Dollars; associated ticker is GIB.A
Rating Legend: 1-Outperform, 2-Market Perform, 3-Underperform
G = GAAP EPS
P = Pro Forma EPS
Source: Wells Fargo Securities, LLC estimates, company data, and FactSet
IT & BPO Services
Valuation Range Information:
ACN Basis and Risks: Our valuation range is $96-98, which assumes 20x our FX challenged CY2015 EPS
estimate. Primary risks are pace of economic activity, notably in Europe, and increased competition from both
domestic and offshore service providers.
Required Disclosures
To view price charts for all companies rated in this document, please go to
https://www.wellsfargo.com/research or send an email to: [email protected]
Additional Information Available Upon Request
I certify that:
1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or
issuers discussed; and
2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed
by me in this research report.
Wells Fargo Securities, LLC maintains a market in the common stock of Performant Financial Corp., Booz Allen Hamilton

8
Holding Corporation, IGATE Corporation, CGI Group, Inc., NCI, Inc., ExlService Holdings, Inc., ICF International, Inc., On
Assignment, Inc., Cognizant Technology Solutions Corp., CACI International Inc., ManTech International Corporation, Computer
Sciences Corporation, Sapient Corporation, Infosys Ltd., Wipro Ltd., Syntel, Inc., Leidos Holdings, Inc., Genpact Ltd.
Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in
the next three months from Genpact Ltd., Leidos Holdings, Inc., Sapient Corporation, Accenture plc, Computer Sciences
Corporation, ManTech International Corporation, CACI International Inc., Cognizant Technology Solutions Corp., On
Assignment, Inc., WNS Holdings Ltd., IGATE Corporation, Performant Financial Corp.
Wells Fargo Securities, LLC and/or its affiliates, have beneficial ownership of 1% or more of any class of the common stock of
NCI, Inc., On Assignment, Inc.
On Assignment, Inc., Computer Sciences Corporation currently is, or during the 12-month period preceding the date of
distribution of the research report was, a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided
noninvestment banking securities-related services to On Assignment, Inc., Computer Sciences Corporation.
On Assignment, Inc. currently is, or during the 12-month period preceding the date of distribution of the research report was, a
client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided nonsecurities services to On Assignment, Inc.
An affiliate of Wells Fargo Securities, LLC has received compensation for products and services other than investment banking
services from On Assignment, Inc., Computer Sciences Corporation, ManTech International Corporation, Cognizant Technology
Solutions Corp., CACI International Inc., Genpact Ltd. in the past 12 months.
Wells Fargo Securities, LLC received compensation for products or services other than investment banking services from
Computer Sciences Corporation, On Assignment, Inc. in the past 12 months.
Wells Fargo Securities, LLC or its affiliates has a significant financial interest in On Assignment, Inc., IGATE Corporation,
Computer Sciences Corporation, ManTech International Corporation, CACI International Inc., Cognizant Technology Solutions
Corp., Leidos Holdings, Inc., Infosys Ltd., Syntel, Inc., Wipro Ltd.
Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in
the next three months from an affiliate of Leidos Holdings, Inc., Genpact Ltd., Science Applications International Corp., NCI,
Inc., ExlService Holdings, Inc.
Wells Fargo Securities, LLC, or any of its affiliates, has beneficial ownership of 5.3% of any class of common stock of On
Assignment, Inc.
ACN: Primary risks are pace of economic activity, notably in Europe, and increased competition from both domestic and offshore
service providers.
ASGN: Risks include sensitivity to general macroeconomic conditions, near-term movements in information technology demand,
and the potential for integration risks from steady pace acquisitions.
BAH: In our view, uneven timing of government client spending decisions is the biggest risk to consistently executing on the
financial model. In addition, BAH, in general, has higher priced offering, potentially putting them at risk given the current intense
focus on price by their government clients. BAH also has notable financial leverage after recent special dividends.
CACI: Risks include continued slow client funding, intensified competition, sustained pricing pressure, and integration risk around
the large Six3 deal.
CSC: Risks include delays in federal government contract awards (~30% of revenue) and the impact of the economy on
discretionary spending and longer-term deal signings. Other factors are a highly competitive ITO market, offshore cannibalization,
and historic execution issues.
CTSH: Risks to our valuation range include a large exposure to the now soft financial services, healthcare payer, and
pharmaceutical verticals, risk of a meaningful pullback in the global economy, potential new U.S. visa limitations, and acquisition
integration given the large TriZetto deal.
EXLS: Risks to our valuation range include client concentration (top 5 ~35% of revenue), the pace of client decision-making,
acquisition integration risk, and political sensitivity.
G: Risks include the need to continue expansion/ penetration of the faster growing non-GE business, pace of client decisions/
conversions, ability to attain qualified personnel, and price paid and assimilation of potential acquisitions.
GIB.A: Risks to our valuation range include acquisition integration (although management's track record is good, in our view),
uncertain economic conditions, and U.S. Federal and State & Local government spending concerns.
ICFI: Risks to our valuation range include the uneven timing and uncertain outlook of federal government funding, M&A
integration, and increasing competition as the company moves further into newer commercial and international markets.
IGTE: Risks include unfavorable FX, macroeconomic uncertainty, notable financial leverage, and possible
operational/management unevenness as the new CEO's strategy is put in place.
INFY: Risks include visibility concerns, rising pricing pressure (especially in the legacy ADMO business), macroeconomic
concerns, and FX movement.
LDOS: Risks include continued sensitivity to federal spending including intense price pressure, and challenges in the commercial
health and energy businesses.
MANT: Risks include exposure and uncertain timing of in-theatre support contracts (~30% of revenue), acquisition integration,
concentrated ownership with two classes of stock impacting voting power, and the vagaries of having the U.S. federal government as
a client.
NCIT: Risks include the uneven and uncertain timing of government funding, continuing DoD budget funding pressure, and
acquisition integration risk given management's stated intent to again pursue M&A. In addition, NCIT still faces declines in their
core revenue base given the increasingly competitive, and price sensitive, market. Also, the founder owns about 37% of the company
and controls about 85% of the voting rights limiting interest by strategic investors.
PFMT: Risk is primarily the timing, success, and financial characteristics of the RAC re-compete that could influence if there is a
further reduction in CY14 and out-year estimates. Other risks include the transitioning market for guaranteed student loan
issuance, dependence on two major federal government contracts, and potential share overhang (pre-IPO investor owns ~30% of
shares outstanding).
SAIC: Risks include pressure on federal government spending including that caused by Sequestration, intense price pressure, and
the need to mature a new management team and operating model.
SAPE: Risks include failure to achieve regulatory approvals for the Publicis purchase transaction, and to a lesser extent a sharp
deterioration in the pace of discretionary spending.
SYNT: Risks include SYNT's need to grow clients beyond the top 3. SYNT does face difficult operating margin comparisons in
2014. Also, the Chairman's family controls about 60% of the shares limiting share liquidity.
WIT: Risks include potential economic weakness, unfavorable FX, and risk of protectionist measures. Additionally, any effort to
increase ADS float could lead to a contraction in the premium over the local shares.
WNS: Risks to our valuation range include customer concentration, lumpy sales, uneven FX gains/losses, and relatively high
employee turnover.
Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions.
Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability
and revenue of the firm, which includes, but is not limited to investment banking revenue.
STOCK RATING
1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the
next 12 months. BUY
2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market
over the next 12 months. HOLD
3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12
months. SELL
9
IT & BPO Services
SECTOR RATING
O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.
M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.
U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.
VOLATILITY RATING
V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the
analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading.
As of: December 19, 2014
45% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Outperform.
Wells Fargo Securities, LLC has provided investment banking
services for 45% of its Equity Research Outperform-rated
companies.
Equity Research are rated Market Perform.
services for 32% of its Equity Research Market Perform-rated
companies.
Equity Research are rated Underperform.
services for 21% of its Equity Research Underperform-rated
companies.
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11