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Convergys Corp (CVG) does outsourcing in customer management, information (billing) management, and HR management, 64%, 28%, and 8% respectively. They have some customer concentration in communications and have experienced some customer loss due to consolidation. This may continue in the future. However, the stock is very attractive on its valuation metrics and 2008 guidance portrays adequate growth. Furthermore, outsourcing becomes attractive as economic conditions create cost pressures, and their CEO was optimistic on this basis during the last conference call. The company has increased its sales force and their pipeline is up. This type of concrete talk about how growth is going to be created is appealing to me.
At Friday's closing price of 14.40, this trades at a P/E of 11.7, well below its industry, the S&P 500, and its own 5 year average. EPS Guidance for 2008 is 1.31 to 1.36, so the forward P/E based on guidance is 10.9. Growth, based on EPS guidance, will be 8% next year. This is right around the 7% which John Neff notes, gets no respect, but adds up over time. The balance sheet is healthy.
By segment, the Customer Management (the largest) is on target, to judge by guidance. Information Management needs expense rationalization, which is in progress, and margins are ample. HR Management, the issue is implementation - from my own experience, this activity can be complex, and they have had some difficulties with implementation timeliness and cost. They have made it a good way up the learing curve and are selecting new business which falls within their capabilites. Guidance limits their loss from this activity to 15 million.
I recently added this stock to my SLO portfolio, a small position, and I intend to add to it as circumstances permit. From more or less 15, I see a price target of 22.50 within a year, based on a P/E of 17 X EPS of 1.33 = 22.50.
Tom
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