By:
Taylor Smith, AIM Student at Marquette
University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Atos SE Unsponsored ADR (AEXAY). Atos is an IT solutions company
that provides consulting and systems integration products and services. The
company was founded in 1997 and is headquarted in Bezons, France.
• Atos is expected to
continue its momentum after experiencing a fantastic first half in 2016, with
strong growth in revenue, operating margin, and free cash flow.
• Atos has recently
announced a 3-year plan to continue excelling in its Digital Transformation
Strategy, with higher organic revenue growth and higher operating margins.
• Management announced
this week a very bold plan to invest in quantum computing, seeking to get a
head start in a market that has yet to be uncovered.
Key
points: Atos experienced excellent first half results for
2016, causing the company to raise its second half and future expectations.
With free cash flows up 74% year-on-year, operating margin up 23% year-on-year,
and revenue up 18% constant exchange rates, the company is on pace for a
fantastic year. Management expects momentum to be strong through the remainder
of the second half with minimal Brexit repercussions due to low exposure in the
UK for discretionary IT spending in the financial services sector.
Chief Executive Officer,
Thierry Breton, recently announced the company’s new 3-year plan: 2019
Ambition, which will feature organic revenue growth ranging from +2% to +3%
CAGR, and an operating margin ranging from 10.5% to 11.0% in 2019. Atos
launched a similar plan 3 years ago, “2016 Ambition,” and over-achieved every
objective. The new plan draws much excitement from employees and shareholders,
zeroing in on the Atos’s Digital Transformation Factory. Cloud, Digital
Workplace, SAP HANA, and Cognitive Solutions are the four high growth pillars
associated with this “Factory,” and will help companies to transform data into
business value while also enhancing cybersecurity.
In addition to the 2019
growth targets, the company also has recently announced its most ambitious
plan yet: Atos Quantum. Quantum computing focuses on theoretical
computational systems that directly make use of quantum mechanical phenomena. The
first quantum revolution began with European scientists and physicists such as
Einstein, Heisenburg, and Schrodinger, with results leading to present day
technology such as lasers, MRI, and GPS systems. Atos ambitiously seeks to help
launch the second quantum revolution through quantum computing solutions that
have the potential to offer unmatched computing power compared to anything used
today. The program has been analyzed and reviewed by world-renowned
mathematicians and physicists specializing in quantum mechanics. Already, the
group has 15 R&D centers and a new quantum research center near Paris.
What
has the stock done lately?
Following the U.S.
Election, the stock Jumped 2.5%, which demonstrates consumer confidence in the
company’s ability to continue preforming in its divisions in the U.S. and
abroad. The stock has been relatively volatile since Q3 earnings was released
in mid-October, with prices ranging from $20.00 to $21.30. As the fiscal year
comes to an end, the stock price should continue to rise if the company meets
its 2016 estimates.
Past
Year Performance:
AEXAY has appreciated
31.01% in value over the course of the past year, but the stock is still marked
as a slight bargain on the street. Market valuations imply a 7 basis point
undervaluation with a vast amount sources giving the company “buy” ratings. As
stated previously, the company has already hit its 3-year financials goal.
Source:
FactSet
My
Takeaway
I think the most interesting
and unique aspect about Atos’s future is their play for quantum computing. No
person nor company has ever created a quantum computer, and the science is
still relatively theoretical. However, the project has been reviewed and
approved by renowned specialists. It will be interesting to see if this comes
into fruition sometime in the next 15 years. As for short term growth, I don’t
see any reason why the company will not be able to successfully meet its 2019
Ambition plan. It is not overly aspiring, and Atos is consistent with meeting
or even exceeding the majority of its goals.
