We downgrade our recommendation for Amdocs Ltd. (DOX) to Neutral, which means the stock will perform mostly in line with the broader market. The stock price has moved up nearly 100% in the last one year and is currently trading at the high-end of its 52-week price range.

Amdocs is the industry leader for developing solutions of customer relationship management and billing software to communications service providers. Amdocs benefits from the long-term trend toward information technology outsourcing. The company’s principle marketing efforts continue to be targeted at leading companies in the communications sector. By offering a “total systems solution,” consisting of its integrated customer management products along with its specialized services, Amdocs has been able to steadily gain market share from its competitors.

Since Amdocs is already the leading supplier in the telecom billing and customer care market, additional market share gains may be difficult to achieve as other vendors compete on price. Telecommunications Software Management System market is highly competitive. More than 100 vendors provide customer management and billing system solutions throughout the world.

Furthermore, Amdocs is facing a high level of customer concentration. Three major clients, namely, AT&T (T), Sprint Nextel Corp. (S), and Bell Canada (BCE) accounted for 51% of the company’s total revenue. Loss of any of these customers will result in significant erosion of the top-line.

Amdocs maintains a very strong financial position with a healthy order backlog. Recently, the company won a series of large managed services contracts in various parts of the world. Except Europe, operations in other regions have started gaining momentum. However, we also believe that these positives are already reflected in the current valuation leaving little room for above market gain.

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