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Moody's reiterates Baa3 rating for Amdocs bonds
Two international rating agencies published updates on Israeli companies at the end of last week. Standard & Poor's upgraded Comverse Technologies (NASDAQ:CMVT) to Accumulate, from Hold, and Moody's reiterrated a Baa3 rating for Amdocs (NYSE:DOX) bonds. But its rating outlook for the Israeli-American billing and customer-care software company is negative.
Regarding Comverse, the rating change does not apply to its debt and credit, which S&P has rated at BB-minus ¿ meaning, the company's ability to defray its debts is below average. The Accumulate rating applies to Comverse's shares, according to STARS ¿ its stock appreciation ranking system.
The STARS system ranges from five stars (Strong Buy) to one (Sell). Accumulate is a four-star billing. Although Comverse's losses exceeded S&P's estimates, the analyst notes, its sales grew 5% quarter to quarter, and its orders backlog sprouted by 61% from the previous quarter, both major pluses.
S&P expects Comverse to return to profitability by the end of the current fiscal year, which ends in January 2004.
In its report on the company's debt rating, S&P had expressed worry at the company's failure to return to the black, and had added that the company could face a further downgrade. Comverse's debts currently total $391 million to bondholders.
As for Amdocs, Moody's reiterated its bond rating at Baa3, the same as in May 2001, when the company raised $500 million through a bond issue. But the rating agency downgraded Amdocs' outlook to negative based on the persisting weakening of the telecommunications industry. That, Moody's says, exposes Amdocs to further drops in procurement budgets for CC&B software, especially among small clients.
Moreover, Moody's says, sales cycles are growing longer in outsourcing too. Bad news for Amdocs, which adapted its business model to rely more on outsourcing.
Amdocs is also hurting from competition in the outsourcing business, which today comprises 10% of its revenues, Moody's estimates.
While Amdocs' revenues slide seems to have stopped, the rating agency wrote, if it does resume it will impact on the company's bottom line and cash flow, and that in turn could create pressure on its rating.
Yet Moody's decided against lowering Amdocs' rating, based on its strong relations with international communications suppliers, which contribute much of its income. They also note the company's favorable geographical deployment, extending beyond North America, and its brimming coffers, which contain over $1.1 billion cash. Its financial leverage is moderate, and it owes a total of $445 million to bond-holders, which it may convert into cash on June 1, 2004.