Author: Joseph D. Foresi

Back to Market Analysis home After traveling with management, we maintain our BUY rating on Genpact as we believe the company will produce better than market returns over the short and long term. Genpact is well positioned to capitalize on a healthy BPO demand backdrop. The company’s GE lineage and global reach serve as a distinct competitive advantage. The challenge going forward is expanding the company’s reach to new customers and verticals, while continuing to mine revenue from the present relationships. We believe Genpact will successfully expand its business and view the stock as a core long term holding. Back…

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Back to Market Analysis home The sprint is on until the end of 2012. Recent stock price movements look sustainable in the absence of 2013 visibility, which we don’t expect this quarter. Investors remain locked in their positions, “Playing Prevent Defense Until Year End”. The decision to trim positions at 52-week highs is the easy part. The problem is finding areas to reinvest those profits as most stock prices have been bid up, which is why we believe investors are sticking with their present winners. On the short side, the opportunities are scarce if you are looking for names that…

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Back to Market Analysis home INVESTMENT CONCLUSION: We maintain our NEUTRAL rating on Paychex following better than forecast first quarter results. Paychex lacks a immediate catalyst as new business formation remains muted and margins are held back by investments. There is the potential that the company loses market share to technology based vendors over the longer term, but we have yet to see clear cut evidence supporting this thesis. The multiple for the stock is expensive given its earnings growth profile, but is supported by a healthy dividend and recurring revenue base making it unlikely there will be a short…

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Back to Market Analysis home The market has moved up recently, implying the economy has improved. Although there may be small incremental gains, we are far from being out of the woods in our opinion. We are getting indications that demand is stable in the outsourcing group, but no indications of acceleration. The net result may be a short-term opportunity to take profits. Overall our investment thesis that portfolio positioning should continue to have a defensive nature has not changed. We will be looking for more data points in the upcoming weeks regarding spending patterns and how strong the end…

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Back to Market Analysis home INVESTMENT CONCLUSION: We caught up with BPO industry analysts NelsonHall. First half 2012, BPO deal conversion rates have been hampered by macro factors and risk aversion following a strong 2011, potentially leading to pent up demand. There is an increasing focus on domain expertise, which translates into a Race Up the Value Chain. The pricing environment remains disciplined. If slower conversion rates persist (there have been encouraging signs in recent months), it could impact 2013 as vendors are working through a healthy 2011 backlog in 2012. The Race Up the Value Chain favors those with…

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Back to Market Analysis home VanceInfo reported quarterly results roughly in line with expectations. FY12 revenue guidance was raised but FY12 EPS guidance was lowered as the company attempts to shift impacted employees to other projects as a result of cancellations with two large clients. Synergies of the merger with hiSoft include scale to compete on a global basis, complementary customer bases, and cost reduction opportunities (2% of revenue within 18 months of the deal closing). We maintain our NEUTRAL rating. Back to Market Analysis home For more information, please contact: Joseph D. Foresi 617-557-2972

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Back to Market Analysis home The outsourcing space is facing two factors heading into 2013. The first is the macro. The space is at a critical juncture with price declines taking place, but contained to specific verticals (capital markets). If the macro remains stable, then the problem is contained, but if it deteriorates we could see pricing discounts spread. The macro appears to be holding up as of our latest checks. The second is the maturity of the space with commoditization taking place causing a bias to the names further up the value chain. Both factors are hard to measure,…

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Back to Market Analysis home Earnings season came to an end this week for the outsourcing group. Cognizant reported solid results and maintained 2012 guidance. The results ended the season on an up note. As we cross through the mid point of the year (2012), we turn our attention to 2013 prospects. The demand environment for the space remains dependent on the macro economic outlook, which will impact second half of 2012/2013 forecasts. A further worsening of the macro environment could lead to wide spread price declines and potentially cancellations. Stability at the macro level could mean that pent up…

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Back to Market Analysis home VanceInfo reported quarterly results roughly in line with expectations. FY12 revenue guidance was raised but FY12 EPS guidance was lowered as the company attempts to shift impacted employees to other projects as a result of cancellations with two large clients. Synergies of the merger with hiSoft include scale to compete on a global basis, complementary customer bases, and cost reduction opportunities (2% of revenue within 18 months of the deal closing). We maintain our NEUTRAL rating. Back to Market Analysis home For more information, please contact: Joseph D. Foresi 617-557-2972

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Back to Market Analysis home Our Thoughts: CSC reported results above expectations highlighted by improved margins. Management did not provide official FY13 guidance. In order to develop a creditable investment thesis, investors will need further color on the prospects for the company going forward. We look to the earnings call to provide that color. Other areas of interest: NPS outlook, progress on the turnaround, organic growth, and pipeline conversion rates. We maintain our NEUTRAL. Back to Market Analysis home For more information, please contact: Joseph D. Foresi 617-557-2972

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