On Thursday, Baird initiated coverage on Concentrix Corporation (NASDAQ:CNXC) shares, a company specializing in customer care and IT consulting services. The firm set an Outperform rating on the stock, with a price target of $70.00, highlighting the company's attractive valuation and growth prospects.
Concentrix, known for providing a mix of voice and non-voice customer care services, which account for 92% of its revenue, along with IT consulting, design, and implementation services making up about 8%, has been recognized for its competitive strengths. Baird's analysis suggests that the company's scale, global delivery, and comprehensive range of services could enable steady revenue growth.
The analyst from Baird noted that the valuation of Concentrix is appealing, trading at approximately 4 times its forecasted 2026 earnings per share (EPS) and 4.5 times its estimated 2026 earnings before interest, taxes, depreciation, and amortization (EBITDA). These multiples are based on the expectation that EPS growth could average in the high-single to low-double digits over the next five years. This growth is anticipated to be driven by low-single digit revenue growth, modest margin expansion, and share repurchases.
Furthermore, the analyst believes that Concentrix's strategic position allows it not only to generate positive revenue growth but also to potentially enhance shareholder value through stock repurchases. These buybacks could add more than 10% to the company's EPS following debt repayment, according to Baird's assessment.
The setting of this price target and the optimistic outlook for Concentrix come as the firm is poised to capitalize on its comprehensive service offerings and market position. The Outperform rating indicates Baird's confidence in the company's potential for stock performance relative to the market or its sector peers.
In other recent news, Concentrix Corporation reported steady growth and significant technological investment in its third-quarter fiscal year 2024 earnings. Its revenue saw a 2.6% increase, reaching $2.4 billion, primarily driven by growth in the retail, travel, e-commerce, banking, and financial services sectors. However, the company's adjusted Operating Income and adjusted EPS fell short of expectations due to higher than anticipated Selling, General, and Administrative costs.
Scotiabank maintained its Sector Outperform rating and $85.00 price target for Concentrix, while Canaccord Genuity reaffirmed a Buy rating, adjusting its price target to $100. These ratings come despite the company's revised profit guidance for the fourth quarter and full-year 2024, which were below analyst and consensus estimates.
Concentrix has also launched iX Hello, an AI productivity tool aimed at enhancing operational efficiency, and secured a significant five-year contract worth over $150 million with a financial organization. The company's non-GAAP operating income rose to $331 million, with a non-GAAP operating margin of 13.9%. Adjusted free cash flow for the quarter was reported at $135 million, with total cash and cash equivalents at $246 million.
Looking ahead, Concentrix expects Q4 2023 revenue to be between $2.42 billion and $2.47 billion, and full-year 2024 revenue projection is between $9.591 billion and $9.641 billion, reflecting a 2.2% to 2.7% growth. Despite the challenges, Concentrix's management remains committed to a conservative capital allocation strategy, which includes repaying debt and returning capital to shareholders.
InvestingPro Insights
To complement Baird's optimistic outlook on Concentrix Corporation (NASDAQ:CNXC), recent data from InvestingPro provides additional context to the company's financial position and market performance.
Despite the positive analyst rating, InvestingPro data shows that CNXC's stock has faced challenges, with a 30.67% decline in the past month and a year-to-date total return of -46.65%. This recent downturn has led to the stock trading near its 52-week low, which could present a potential entry point for investors who agree with Baird's bullish stance.
On the financial front, Concentrix demonstrates strong fundamentals that support Baird's growth projections. The company's revenue growth stands at an impressive 44.09% over the last twelve months, with a healthy gross profit margin of 36.18%. These figures align with the analyst's expectations of steady revenue growth and potential for margin expansion.
InvestingPro Tips highlight that Concentrix has raised its dividend for 4 consecutive years, which may appeal to income-focused investors. Additionally, the company's liquid assets exceed short-term obligations, indicating a solid financial position that could support the share repurchases mentioned in Baird's analysis.
For investors seeking a deeper understanding of Concentrix's potential, InvestingPro offers 11 additional tips, providing a more comprehensive view of the company's prospects and challenges.
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