Ness Technologies, Inc. (NSTC) is a small player in a challenging market for IT services. Outside the Israeli government market, the company faces intense competition from established players, such as Accenture Ltd. (ACN), International Business Machines (IBM), Hewlett-Packard Company (HPQ), Computer Sciences Corporation (CSC), Electronic Data Systems Corporation (EDS), and others.
Although the company showed improved results in the last two quarters, this was on the heels of three disappointing quarters, and is partially due to currency exchange gains. Ness has a history of weak cash flow generation. With increasing working capital requirements, cash flow from operations has been steadily falling for the past few years. Management has twice lowered its full-year 2007 guidance following its bad performance in the first three quarters. Given this thesis, we maintain a Sell rating on NSTC shares.
Ness Technologies currently trades at a P/E of 9x our 2008 EPS estimate of $1.06, a significant discount to the industry. We are concerned that backlog growth is slowing sequentially. We, therefore, maintain our Sell recommendation on the shares of NSTC with a six-month target price of $7.50, representing a P/E multiple of 7.1x our adjusted earnings estimate of $1.06 for 2008.
Read the full analyst report on NSTC.
Read the full analyst report on IBM.
Read the full analyst report on HPQ.
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