Concentrix Corp

Concentrix Corporation (NASDAQ: CNXC) is a global supplier of customer experience (CX) solutions that are blended with technology. Clients may benefit from the company's end-to-end services, which include CX process optimization, technological innovation, front- and back-office automation, analytics, and business transformation. It provides comprehensive solutions that support the customer lifecycle, including customer experience (CX) and user experience (UX) strategy and design, as well as analytics and actionable insights.

Key Highlights and updates

• On May 9, 2022, ServiceSource International, Inc. announced the signing of a final merger agreement under which Concentrix Corporation will purchase ServiceSource in an all-cash transaction. For each issued and outstanding share of ServiceSource common stock, investors will receive USD 1.50 in cash. The purchase price is a 47 percent premium to ServiceSource’s unaffected May 6, 2022, closing stock price.
• On May 31, 2022, Concentrix Corporation said that it will release its fiscal second-quarter 2022 financial results after market close on Monday, June 27, 2022. On Tuesday, June 28, 2022, the Company expects to have a conference call and webcast with the investor community to discuss the financial results.

Important financials from the Q1 FY22 results

• Revenue was USD 1,536.1 million, up 13.5 percent from the prior-year first quarter and 10.6 percent on an adjusted constant currency basis, compared to USD 1,353.3 million in the prior-year first quarter.
• Operating income was USD147.7 million, or 9.6% of sales, compared to USD 134.9 million, or 10% of revenue, in the first quarter of the previous year.
• Adjusted EBITDA was USD 237.9 million, or 15.5 percent of revenue, compared to USD 212.6 million, or 15.7 percent, in the first quarter of the previous year.
• Non-GAAP diluted EPS was USD 2.85 compared to USD 2.29 in the prior year's first quarter while Diluted EPS was USD 2.09 compared to USD 1.69 in the prior year's first quarter.

Balance sheet and cash position

• Operating cash inflow climbed to USD 45.02 million in Q1FY22 from USD 35.88 million in the previous period for the same quarter,
• Total cash and cash equivalents were USD 142.16 million at the end of Q1FY22, down from USD 182.04 million at the end of FY21, while CNXC debt climbed to USD 2.35 billion from USD 802 million at the end of FY21.

Other key financial information from Q1 FY22

• On February 8, 2022, Concentrix paid a USD 0.25 per share quarterly dividend. The Board of Directors of the Company had announced a quarterly dividend of USD 0.25 per share, which was paid on May 10, 2022, to shareholders of record on April 28, 2022.
• In the first quarter, Concentrix did not acquire any shares under its previously announced share repurchase program. The Company's remaining share repurchase authorization was USD 474.9 million as of February 28, 2022.

Risk analysis

• Customer Concentration Risk: In FY20, CNXC's top five customers accounted for 27% of the company's total revenue. The loss of any of these important clients might have a negative impact on the company's finances.
• Foreign Exchange Translation Risk: CNXC does business in a variety of currencies other than the US dollar, making it exposed to currency volatility. Even if currency forward contracts have been used to offset price fluctuations, the risk still exists. As a result, any adverse exchange rate movement would have a negative impact on the company's financials.

Outlook

• NXC estimates revenue of USD 1.57–1.60 billion in Q2FY22, with operating income of USD 146–161 million and USD 205–220 million on a GAAP and non-GAAP basis, respectively, and an effective tax rate of 25%–26%.
• CNXC anticipates revenues to range between USD 6.45 and 6.60 billion in FY21. It also forecasts GAAP operating income of USD 660–700 million, non-GAAP operating income of USD 890–930 million, and an effective tax rate of 25 percent to 26 percent.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation

Over the past six months, CNXC's share price has corrected by 7.19% only. The stock is currently leaning towards the lower end of its 52-week range of USD 136.74 to USD 208.48. The stock has broken out of the consolidation range of USD 137 to USD 147 and has faced resistance from the short-term (50-day) SMA. We have valued the stock using the Price/Earnings Per Share multiple-based relative valuation method and arrived at a target price of USD 194.58. We believe that the company is trading at a premium from its peer's average considering robust first-quarter results and a positive outlook give bullish estimates for the upcoming near future.

Considering the strong fundamentals, healthy top-line results, associated risks, positive outlook, and current valuation, we give a "Hold" recommendation on the stock at the current price of USD 153.10 down 1.16%, as of June 01, 2022, at 09:10 AM PDT.

One Year Technical Chart, as of June 01, 2022, at 09:10 AM PDT. Data Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.