IT与BPO服务业：制定价格目标

1、IT and BPO ServicesEstablishing 2020 Price TargetsNorth America Equity Research15 August 2019With this report, we are rolling forward our price targets a year to Dec. 2020. IT/BPO services sector had a mixed 1H19; while the sector as a whole modestly outperformed the broader market, company specific

2、 returns and financial performance was more divergent than usual. Digital focused firms and offshore BPO firms outperformed as expected, while legacy firms (specifically, DXC and CNDT) and offshore IT services firms in our coverage universe (CTSH and VRTU) significantly underperformed. We attribute

3、the divergence to continued high demand for digital and transformation/BPO services, creating secular headwinds for legacy firms struggling to re-mix to modern work. Hard to expect further multiple expansion for the winners going forward, as multiples are at record high levels for some of the outper

4、formers (e.g. GLOB, ACN), but premium and durable growth should be sustainable and rewarded versus legacy names. VRTU and DXC are our top picks, which offer the highest earnings growth and/or multiple expansion potential. We also remain Overweight ACN and WNS where absolute returns may not rank at t

5、he top of the group, but risk to earnings should be below average. Our top picks are biased towards value, which has been out of favor, and a function of our lukewarm outlook for the sector as a whole.YTD 2019: A tale of two cities. While the overall sector is up 17% YTD (vs. S&P 500 up 15%), there

6、was a clear separation between top performers and others in stock returns. Top half performers, on an average, outperformed the bottom half by 70% in YTD returns, as financial performance was clear and underperformers were punished. The top stocks (GLOB, G, WNS, and ACN) reported better than expecte

7、d revenue and earnings and expanded margins, resulting in solid multiple expansion; while the underperformers (DXC, CNDT, VRTU, and CTSH) lowered their revenue and margin expectations during the period. We attribute the divergent performance to company specific drivers and acceleration in mix-shift

8、towards digital at expense of legacy.Ranking growth 2019-2021. GLOB remains by far the fastest growth (by revenue and long term earnings) name, followed by VRTU and offshore BPO companies. Among offshore BPO, WNS is expected to grow revenue faster than its peers. Bottom quartile growers include lega

9、cy IT/BPO services names such as DXC and CNDT. IBM stays in the bottom quartile, but should benefit from the Red Hat deal which we expect to push its revenue growth rates into positive territory over the next few years.Ranking upside/downside to new price targets. Names with the greatest upside to o

10、ur targets include: VRTU (47%), DXC (32%) and CNDT (21%). Names with the least upside to our targest include: CTSH (7%), EXLS (10%), and IBM (10%). However, our ratings and recommendations balance potential returns w/ risk in achieving those returns.Recommend VRTU as the top pick; DXC as top deep va

11、lue pick. We recommend VRTU (OW) as our top pick given its top quartile growth profile (driven by above industry average revenue growth and margin expansion) and yet a below average trading multiple. We also like DXC (OW) as a deep value idea, given its low valuation levels should make stock repurch

12、ase and potential strategic actions highly accretive. We continue to rate CNDT OW as potential strategic actions could unlock value from the stock. We continue to recommend WNS (OW) as the top BPO idea, given its higher sustainable revenue growth profile. We remain on sidelines with a positive bias

13、for Neutral rated G and IBM, as wed like to see more evidence of sustainable growth rates and execution, respectively. Finally, we continue to rate CTSH as UW given the uncertainty surrounding a difficult transition to being a higher growth company.Payments, Processors & IT ServicesTien-tsin Huang,

14、CFA AC(1-212) 622-6632 HYPERLINK mailto:tien-tsin.huang tien- HYPERLINK mailto:tsin.huang tsin.huangBloomberg JPMA HUANG Puneet Jain(1-212) 622-1436 HYPERLINK mailto:puneet.x.jain puneet.x.jainJ.P. Morgan Securities LLCSee page 41 for analyst certification and important disclosures.J.P. Morgan does

15、and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment dec

16、ision. HYPERLINK / Equity Ratings and Price TargetsCompanyTickerMkt Cap ($ mn)Price ($) Rati Curng PrevCur Price TargetEndPrev DateEnd DateAccenture plcACN US121,375.40186.97OWn/c219.00Dec-20194.00Dec-19CognizantCTSH US34,206.6060.65UWn/c66.00Dec-2070.00Dec-19ConduentCNDT US1,394.696.60OWn/c8.00Dec-

17、20n/cDec-19DXCDXC US8,539.8031.75OWn/c45.00Dec-2053.00Dec-19ExlService Holdings Inc.EXLS US2,291.0966.02Nn/c75.00Dec-2071.00Dec-19GenpactG US7,666.1239.69Nn/c46.00Dec-2042.00Dec-19GlobantGLOB US3,755.51100.63OWn/c119.00Dec-2087.00Dec-19IBMIBM US116,326.90131.25Nn/c152.00Dec-20n/cDec-19Virtusa Corp.V

18、RTU US1,108.6432.67OWn/c49.00Dec-2045.00Dec-19WNS Holdings Ltd.WNS US3,228.7762.00OWn/c73.00Dec-2066.00Dec-19Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 14 Aug 19.Table of Contents HYPERLINK l _bookmark0 YTD Look Back3 HYPERLINK l _bookmark2 Outperformer

19、s & Underperformers in 1H196 HYPERLINK l _bookmark3 Growth Forecasts8 HYPERLINK l _bookmark4 Accenture plc11 HYPERLINK l _bookmark5 Cognizant14 HYPERLINK l _bookmark6 Conduent17 HYPERLINK l _bookmark7 DXC20 HYPERLINK l _bookmark8 ExlService Holdings Inc.23 HYPERLINK l _bookmark9 Genpact26 HYPERLINK

20、l _bookmark10 Globant29 HYPERLINK l _bookmark11 IBM32 HYPERLINK l _bookmark12 Virtusa Corp.35 HYPERLINK l _bookmark13 WNS Holdings Ltd.38YTD Look BackYear to date 2019 has been a mixed year for IT and BPO stocks, with 6 out of 11 stocks outperforming the broader market. The group as a whole modestly

21、 outperformed, with average returns of 17% compared with the S&P 500 up 15%. BPO companies (EXLS, G & WNS) outperformed, while legacy IT services firms like IBM and DXC along with Offshore firms CTSH and VRTU underperformed.While the group as a whole did better than the broader market, separation be

22、tween the outperformers and underperformers was quite high. The top 5 stocks in our coverage are up 50% YTD on an average, and the bottom five stocks were down 17% on an average, implying a gap of 70%. We attribute the divergence to respective financial performance, specifically in revenue trends, r

23、elative to prior expectations. The companies that delivered higher than previously expected revenue growth outperformed in stock returns, and vice versa, fueling momentum in the belief that digital firms will continue to separate from legacy firms. Digging deeper, we believe IT services industry cou

24、ld be experiencing acceleration in mix-shift towards digital, which could be hurting legacy IT services firms while also driving outperformance in Digital pure plays and BPO firms.Overall macro environment also remained steady, and big risks to outlook in 4Q18 (Brexit, US/China trade war) did not ma

25、terialize or at least got pushed out, resulting in relatively healthy spending environment and multiple expansion in the first half of the year. As such eight out of ten stocks in our coverage experienced multiple expansion in 2019 YTD. Figure 1 and HYPERLINK l _bookmark1 Figure 2, below, show indiv

26、idual stock performance and IT services sector performance relative to other S&P 500 categories.Figure 1: Stock Returns: IT Services Universe YTD84%100%51%53%80%29%35%60%15%18%40%20%0%-22%-4%-20%-40%-36%-40%-60%CNDTDXCVRTUCTSHSPXIBMEXLSACNWNSGGLOBSource: Bloomberg.Note: Represents year to date retur

27、ns as of 8/12/2019.Figure 2: YTD JPM IT Services vs. S&P 500 Sector Returns24%25%18%18%14%15%16%15%11%12%5%1%30%25%20%15%10%5%EnergyHealth CareFinancialsMaterialsUtilitiesS&P 500Consumer StaplesIndustrialsConsumer DiscretionaryTelecom ServicesJPM IT ServicesInformation Technology0%Source: J.P. Morga

28、n, Bloomberg.Note: IT Services returns represent the market cap-weighted returns of the IT services names within our coverage universe. Note: Represents year to date returns as of 8/12/2019.Actual vs. Estimated Forward Operating Metrics DownTable 1, below, shows CY19 and CY20 consensus estimate revi

29、sions for the IT services/BPO sector since January 2019. The table indicates the sectors margins have come in light relative to consensus expectations over the last six months.Revenue estimates are, on an average, slightly lower, but operating margin estimates are well below to get lower EPS. Simila

30、r to revenue trends, there was significant divergence in margin surprises at the top performers vs. underperformers. Most of the firms that did well on revenue also reported margin upside (except ACN where margins were flat relative to our views), while all firms that experienced revenue slowdown su

31、rprised to the downside on margins as well. While potentially higher incremental margins on revenue upside/downside could be among the reasons for the trend, we also note a few company specific drivers of margin performance at a few firms. Going forward, consensus expects margin improvement across a

32、ll firms in the space, which leaves little room for error across the sector.Table 1: IT Services/BPO: Revision in Consensus Expectations for the Groups Key Metrics YTD20192020Revenue-0.7%-1.3%Operating Margins-10.9%-4.5%Operating profit-11.2%-5.3%EPS-8.3%-8.4%Source: J.P. Morgan estimates, Bloomberg

33、.Note: YTD change in average estimates as of 8/12/2019.Table 2 through Table 5, below, show CY19 and CY20 consensus revenue/EPS estimate revisions for our IT services/BPO coverage universe since January 2019. The stocks that had the highest upward earnings revisions include GLOB, G, WNS, and ACN. Wh

34、ile DXC, CNDT, CTSH, and VRTU are seeing declining margins leading to lower earnings. IBM estimates include near term headwinds from the RedHat deal, while EXLS CY19 estimates include Health Integrated challenges which should not recur going forward.Table 2: Revenues: Consensus Estimate Changes Sinc

35、e January 20192019 Estimates2020 EstimatesCompanyJan-19Aug-19% Jan-19Aug-19% ACN$43,722$44,1631%$46,755$47,2281%CNDT$4,666$4,450-5%$4,742$4,278-10%CTSH$17,400$16,693-4%$18,712$17,556-6%DXC$20,814$20,303-2%$21,247$20,736-2%EXLS$998$987-1%$1,089$1,059-3%G$3,282$3,4786%$3,561$3,7926%GLOB$630$6432%$765$

36、7761%IBM$79,138$77,591-2%$80,100$80,0070%VRTU$1,363$1,319-3%$1,509$1,470-3%WNS$849$8581%$933$9492%Source: J.P. Morgan estimates, Bloomberg. Note: YTD change in average estimates as of 8/12/2019.Table 3: Operating margin: Consensus Estimate Changes Since January 2019CompanyJan-192019 EstimatesAug-19%

37、 Jan-192020 EstimatesAug-19% ACN14.7%14.7%0%15.2%15.1%-1%CNDT9.2%6.4%-30%10.3%6.7%-34%CTSH20.4%16.8%-17%20.4%16.9%-17%DXC16.8%14.1%-16%18.2%15.3%-16%EXLS14.5%13.4%-8%15.1%15.0%-1%G15.9%16.2%2%15.8%16.3%3%GLOB15.7%16.7%6%15.9%16.9%7%IBM18.7%16.3%-13%18.9%18.2%-4%VRTU10.5%9.9%-6%11.5%10.9%-6%WNS19.2%2

38、1.4%11%22.3%21.9%-2%Source: J.P. Morgan estimates, Bloomberg. Note: YTD change in average estimates as of 8/12/2019.Table 4: Earnings: Consensus Estimate Changes Since January 2019CompanyJan-192019 EstimatesAug-19% Jan-192020 EstimatesAug-19% ACN$7.34$7.441%$8.10$8.211%CNDT$1.11$0.62-45%$1.33$0.53-6

39、0%CTSH$4.77$3.94-17%$5.20$4.28-18%DXC$8.79$7.42-16%$9.70$8.39-13%EXLS$3.01$2.94-2%$3.37$3.31-2%G$1.96$2.013%$2.20$2.273%GLOB$2.07$2.217%$2.47$2.7010%IBM$13.92$13.16-5%$14.47$13.66-6%VRTU$2.67$2.21-17%$3.28$3.13-5%WNS$2.59$2.849%$2.92$3.075%Source: J.P. Morgan estimates, Bloomberg. Note: YTD change i

40、n average estimates as of 8/12/2019.Sub-Sector Composition: Legacy (ACN, IBM, DXC)Offshore ITS (CTSH, GLOB,VRTU) BPO (EXLS, G, WNS, CNDT)Table 5: Median Consensus EPS Estimate Changes Since January 201920192020Legacy-5.5%-5.6%Nearshore / Offshore-17.3%-4.6%BPO0.1%0.8%Source: Bloomberg. Note: YTD cha

41、nge in median estimates as of 8/12/19.Outperformers & Underperformers in 1H19Table 6 and Table 7, below, deconstruct IT services/BPO stock performance based on changes in P/E multiples, revenue growth, and EPS growth. While IT services multiples, on an overall basis, contracted last year, the trend

42、somewhat reversed this year (ITS P/E expanded 12% YTD) with most of the stocks in our coverage experiencing multiple expansion. The trend is consistent with the 14% expansion in S&P 500 multiple this year.More than half of our ITS coverage experienced high double digit expansion in multiples, with G

43、LOB, G, ACN, WNS, EXLS and IBM experiencing significant expansion (20%+ each). DXC and VRTU were the only firms that experienced contraction, primarily stemming from weaker than expected revenue growth and margin contraction at both firms.While most companies experienced significant multiple expansi

44、on (along with expansion in broader market multiples), stock returns in many cases were offset by significant decline in earnings estimate for the stocks that underperformed.Table 6: IT Services Forward P/E MultiplesNTM P/E Multiple Jan-2018Jan-2019% 2018Stock Perform AbsoluteRelativeImplied % earni

45、ngsJan-2019NTM P/E Multiple Aug-2019% YTDStock Perform AbsoluteRelativeImplied % earningsACN22.7x19.4x-15%(7.9%)(1.7%)8%19.4x24.7x28%34.7%19.7%6%CNDT17.0 x10.2x-40%(34.2%)-28%9%10.2x12.4x21%(40.2%)(55.2%)-51%CTSH17.0 x14.0 x-18%(10.6%)(4.4%)9%14.0 x14.8x6%(3.6%)(18.6%)-9%DXC9.9x6.2xNA(41.2%)-35%NA6.

46、2x4.4x-29%(36.3%)(51.3%)-11%EXLS21.7x18.0 x-17%(12.8%)(6.6%)6%18.0 x22.1x23%28.5%13.5%5%G18.8x14.3x-24%(15.0%)(8.7%)12%14.3x19.4x36%53.0%38.0%13%GLOB31.3x28.6x-8%21.2%27.5%32%28.6x42.5x48%83.3%68.3%24%IBM10.9x8.2x-25%(25.9%)(19.7%)-1%8.2x10.4x27%17.6%2.6%-7%VRTU23.9x16.9x-29%(3.4%)2.9%36%16.9x11.8x-

47、30%(21.8%)(36.8%)12%WNS19.0 x16.3x-15%2.8%9.1%20%16.3x21.6x33%51.0%36.0%14%S&P 50018.7x14.9x-20%(6.2%)14.9x16.8x13%15.0%Median18.9x15.3x-19%-11.7%(26.7%)9.4%15.3x17.1x12%23.1%8.0%5.0%Avg19.2x15.2x-21%-12.7%-27.7%14.5%15.2x18.4x21%16.6%1.6%-0.5%Source: J.P. Morgan estimates, Bloomberg.Note: Absolute

48、returns are based on sub-sector median, while relative returns are calculated relative to the S&P 500. January NTM P/E multiples represent the 1st of the month.Multiple analysis on a Time SeriesTable 7 below, gives an annual snapshot of historical NTM P/E multiples for the names in our coverage univ

49、erse since January 2012. Directional movements were positive with average multiple appreciation of 17% on P/E (median of 26%) and expansion of 21% (median of 28%) on EBITDA basis this year.Table 7: 12-Month Forward P/E MultipleCompanyJan-12Jan-13Jan-14NTM P/E MultiplJan-15Jan-16eJan-17Jan-18Jan-19Au

50、g-19% Aug-18SinceJan-19ACN13.6215.1717.9418.4719.4419.8122.7519.3625.099%30%CNDTNANANANANANA16.9610.1912.87-22%26%CTSH18.2817.9320.5818.8318.0115.6817.0214.0214.93-6%6%DXCNANANANANANA9.936.234.49-56%-28%EXLS16.4915.3015.6216.0420.3720.1721.7217.9522.199%24%G15.8715.9816.8517.5118.8416.0018.8014.3319

51、.3016%35%GLOBNANANA19.3635.0223.9831.2928.6543.4335%52%IBM12.8311.8610.599.619.1711.8410.948.2310.592%29%VRTU15.6013.5625.4624.9517.3815.5323.8516.8911.87-46%-30%WNS8.729.6015.3312.8516.4715.7519.0216.2621.772%34%Source: Bloomberg.Table 8: 12-Month Forward EV/EBITDA MultipleJan-2012Jan-2013Jan-2014N

52、TM EV/EBITDA MultipleJan-2015Jan-2016Jan-2017Jan-2018Jan-2019Aug-19Jan-18% SinceAug-18Jan-19ACN7.48.510.310.911.912.314.411.716.212%16%38%CNDTNANANANANANA-26%-33%7%CTSH11.211.013.212.010.98.710.28.09.3-9%-7%17%DXCNANANANANANA-56%-54%-33%EXLS6.910.310.312.910.413.33%12%28%G

53、9.69.811.310.211.910.4NA11.114.5NA13%30%GLOBNANANA12.526.212.916.018.128.376%35%56%IBM0%9%32%VRTUNANANANANANANA11.48.3NA-46%-27%WNSNA6.2NA9.311.910.413.310.012.1-9%2%22%Source: Bloomberg.Relative Valuation vs. S&PWe took a closer look at each of our coverage stocks and com

54、pared valuation versus the market this year to what it was during 4Q18, and each of the years since 2012.Comparing with the recent trading history, stocks with the highest upside potential (relative to current multiple) are DXC, CTSH, and VRTU. All three names have significantly underperformed this

55、year, and should benefit the most from potential earnings upside which could drive multiple expansion. Among the three stocks, we see high upside potential at DXC and VRTU which could benefit from potential high stock buybacks (or strategic options) and healthy absolute earnings growth, respectively

56、. CTSH, meanwhile, is undergoing a drawn-out transition to being a higher growth company, which will require solid execution.Similarly, stocks with the highest risk, based on recent trading history, include GLOB and ACN. Both of the stocks have had strong first half returns, and a potential slowdown

57、 in growth rates/total return profiles (relative to expectations) could have an adverse impact on respective multiples.Table 9: NTM P/E Premium vs. S&P 500Min4Q18MedianMax2012201320142015201820172018YTDCurrentACN32%39%40%19%17%8%13%38%14%38%42%48%CNDT-32%-3%11%NANANANA1%8%1%-35%-26%CTSH-5%-8%-4%32%2

58、1%18%17%-1%-4%-1%-5%-12%DXC-58%-48%-33%NANANANA-40%-44%-40%-59%-73%EXLS19%25%32%23%10%1%5%23%12%23%21%32%G-2%-2%-2%28%24%3%8%1%-5%1%5%16%GLOB73%75%103%NANA6%79%83%52%83%113%154%IBM-44%-44%-36%-2%-23%-38%-43%-36%-38%-36%-41%-38%VRTU8%23%43%13%28%43%34%35%8%35%5%-29%WNS14%23%27%-25%-3%-19%-9%22%-6%22%

59、17%29%Source: Bloomberg and J.P. Morgan calculations.Note: Current multiple as of 8/12/19.Growth ForecastsSub-Sector Composition: Legacy (ACN, IBM, DXC)Offshore ITS (CTSH, VRTU)Digital focused firms (GLOB, EPAM) BPO (EXLS, G, WNS, CNDT)Company Growth AnalysisTable 11, below, provides our company-spe

60、cific estimates for revenue CAGR and total returns (EPS CAGR + dividend yield), ranked from highest to lowest. The revenue table indicates firms with high exposure in new Digital/specialized areas and offshore BPO providers continuing to grow faster than legacy and offshore IT services firms.Drivers