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According to FactSet, more and more companies are referring to “AI” in conference calls to win. Breakthrough technology is poised to streamline work across most industries, and companies well positioned and those with the guts to make investments in artificial intelligence could see profits appear throughout 2023 At.
I have a buy recommendation for Concentrix Corporation (NASDAQ:CNXC). Valuation is very attractive given earnings growth but chart is worrying ahead of Wednesday night’s Q2 results.
AI in fashion
FactSet
According to Bank of America Global Research, CNXC is a global leader in customer experience (CX) solutions. The company offers services in 70 languages in over 40 countries at over 275 locations in the Americas, Asia Pacific and EMEA. It has more than 250,000 employees. The focus is on 1) Customer Lifecycle Management, 2) CX/UX Strategy and Design, 3) Digital Transformation and 4) Voice of the Customer (VOC) and Analytics. The communication channels used are voice, chat, email, social media, asynchronous messaging and Investment Rational custom applications.
The California-based data processing and outsourced services company has a market capitalization of $4.3 billion in the industrials sector and trades at a low 12-month GAAP price-to-earnings of 10.4, paying a low dividend yield of 1.3%. Ahead of this week’s gains, the stock has a 4.3% short percentage.
Automation and AI trends are seen as increasing CNXC’s margins, and its management team sees ChatGPT and other large-language models as tools for its customers, according to recent management meetings with the BofA. This trust was underlined by Concentrix acquisition from Webhelp for $4.8 billion last March. Keep an eye out for more comment on how AI is viewed by CEO Chris Caldwell and CFO Andre Valentine in the upcoming Q2 report. Concentrix trades at just seven times 2024 consensus earnings, a significant discount to its peers. So there’s certainly a case for the value of Concentrix.
As early as March, the company reported a drop in profit despite beating sales estimates. Net sales rose 6.5% year over year and the company reported solid free cash flow results. Earnings could accelerate in the coming quarters after buying Webhelp. Expanded service offerings on a global scale and impressive growth in emerging markets are tailwinds for the voice and non-voice segments. The consensus estimate for earnings per share for the second quarter is $2.52, which would represent a 14% decline from the year-ago period. The options market implies an earnings-related stock price fluctuation of 7.4%. CNXC has missed the last three reports and shares have traded lower on each of the previous five occasions after reporting, so those are bearish factors to weigh this week.
At EvaluationAnalysts at BofA expect earnings to remain roughly flat compared to total earnings per share in 2022. Earnings per share are then expected to increase by around a 10% clip in the coming year to 2025. Bloomberg’s consensus outlook is roughly in line with BofA’s forecasts. Dividends, meanwhile, should remain steady at $1.10 per year, so this growth stock’s yield should remain modest. After falling more than 50% from its all-time high in early 2022, today’s valuation is compelling. Concentrix has earnings ratios in the near single digits and the company trades at less than 30% 10 times free cash flow while its EV/EBITDA ratio is less than half that of the S&P 500.
Concentrix: Earnings, Valuation and Free Cash Flow Forecasts
BofA Global Research
Assuming EPS growth of 10% over today’s earnings, the valuation metrics below are quite attractive. If we assume EPS of $12.25 for the next 12 months and apply a P/E of 16 (which brings the future PEG ratio just to the industry median of 1.6), then the stock should trade at around $195 -dollars lie. Even after we apply haircuts to the earnings multiple to account for today’s higher interest rates and use a margin of safety, CNXC stock remains a Strong Buy given its valuation.
CNXC: Very cheap valuation metrics, current earnings gap
I’m looking for Alpha
Looking ahead, corporate event data provided by Wall Street Horizon shows a confirmed earnings date for the second quarter of 2023 on Wednesday, June 28 at AMC with a conference call immediately following the earnings release. You can Listen live here.
Risk calendar for corporate events
Wall Street Horizon
The technical point of view
Ahead of Wednesday night’s earnings release, CNXC recently marked a key technical milestone for the bears to celebrate. When the company spun off, the stock fell back to its IPO price. This is a natural area of interest on the chart as many shareholders remember the opening price. Therefore, it can make sense to take a long position here with a proper stop.
Of concern, however, is that the RSI Momentum reading at the top of the chart suggests that bearish trends are in place. The RSI failed to climb above 50 again. Also, the 200-day long-term moving average is definitely sloping down. Above that, I see resistance in the $105-$109 range. While I really like the valuation and underlying growth prospects, the technical chart shows very bearish momentum and weak price action.
CNXC: IPO price review, bearish momentum
Stockcharts.com
The conclusion
I have a buy recommendation for CNXC. While I’ll admit the specs are pretty weak, the rating is too tempting to discount. If momentum improves, I’d give a strong buy rating here, but only a soft buy is warranted here.
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