Wells Fargo Downgrades Convergys On Lowered Growth Outlook

Wells Fargo analysts downgraded the rating for Convergys Corp CVG from Outperform to Market Perform, after the company reported mixed Q4 results and 2016 guidance.

Convergys reported its quarterly revenue marginally short of expectations, while its adj. EPS was ahead. The company guided to 2016 organic revenue growth of ~1 percent, which missed the Wells Fargo estimate 4 percent, although adj. EPS was in-line to ahead.

Challenges at Convergys’ top-3 clients, which represent about $1B of the company’s total revenue of $3B, are offsetting new client signings and growth in the remaining revenue base.

Following the results, Convergys’ shares jumped 6.7 percent, versus a 0.44 percent gain for the S&P500. “CVG now combines the highest EV/2016E EBITDA valuation (7.5x) and the lowest 2016E organic revenue growth (1%) of the 3 customer care companies we cover,” the analysts said, naming Sykes Enterprises, Incorporated SYKE and TeleTech Holdings, Inc. TTEC as the others.

The revenue and non-GAAP EPS estimates for 2016 have been revised from $3.079B to $2.955B and from $1.87 to $1.90, respectively. The valuation range has been reduced modestly, from $26-$28 to $25-$27 to reflect a lower 2016 EBITDA estimate.