Sykes Enterprises Inc Valuation – October 2018 $SYKE

Company Profile (excerpt from Reuters): Sykes Enterprises, Incorporated (Sykes), incorporated on March 1, 1996, is engaged in providing outsourced customer contact management solutions and services in the business process outsourcing (BPO) arena on a global basis. The Company has operations in two segments: the Americas, which includes the United States, Canada, Latin America, Australia and the Asia Pacific Rim, and EMEA, which includes Europe, the Middle East and Africa. The Company provides its service to clients from its locations in the United States, Canada, Latin America, Australia, the Asia Pacific Rim, Europe and Africa. It serves a range of clients, including medium-sized businesses and public institutions, which span the communications, financial services, technology/consumer, transportation and leisure, healthcare and other industries. Its Americas and EMEA groups primarily provide customer engagement services (with an emphasis on inbound technical support, digital marketing and demand generation, and customer service), which include customer assistance, healthcare and roadside assistance, technical support, and product and service sales to its clients’ customers.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SYKE – October 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,300,051,749 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.90 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 104.76% Pass
6. Moderate PEmg Ratio PEmg < 20 22.52 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.60 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.90 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.25 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $1.35
MG Growth Estimate 6.50%
MG Value $28.97
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $19.55
MG Value based on 0% Growth $11.46
Market Implied Growth Rate 7.01%
Current Price $30.36
% of Intrinsic Value 104.80%

Sykes Enterprises, Incorporated is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.94 in 2014 to an estimated $1.35 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 7.01% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Sykes Enterprises, Incorporated revealed the company was trading above its Graham Number of $26.13. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 22.52, which was below the industry average of 52.08, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $5.2.

Sykes Enterprises, Incorporated receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $5.20
Graham Number $26.13
PEmg 22.52
Current Ratio 2.90
PB Ratio 1.60
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $552,963,000
Total Current Liabilities $190,904,000
Long-Term Debt $90,000,000
Total Assets $1,134,401,000
Intangible Assets $405,820,000
Total Liabilities $333,538,000
Shares Outstanding (Diluted Average) 42,160,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.63
Dec2017 $0.76
Dec2016 $1.48
Dec2015 $1.62
Dec2014 $1.35
Dec2013 $0.87
Dec2012 $0.66
Dec2011 $1.06
Dec2010 -$0.22
Dec2009 $1.05
Dec2008 $1.48
Dec2007 $0.98
Dec2006 $1.05
Dec2005 $0.59
Dec2004 $0.27
Dec2003 $0.23
Dec2002 -$0.46
Dec2001 $0.01
Dec2000 $1.13
Dec1999 $0.51
Dec1998 $0.06

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.35
Dec2017 $1.21
Dec2016 $1.36
Dec2015 $1.23
Dec2014 $0.94
Dec2013 $0.72
Dec2012 $0.70
Dec2011 $0.77
Dec2010 $0.70
Dec2009 $1.12
Dec2008 $1.06
Dec2007 $0.78
Dec2006 $0.56
Dec2005 $0.25
Dec2004 $0.14
Dec2003 $0.14
Dec2002 $0.15

Recommended Reading:

Other ModernGraham posts about the company

6 Best Stocks for Value Investors This Week – 3/26/17
Sykes Enterprises Inc Valuation – Initial Coverage $SYKE

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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