Sunday, November 20, 2016

A current International AIM holding: Atos (AEXAY) by Taylor Smith. “Atos - Growth through IT Services and Consulting”

Atos (AEXAY, $20.80): “Growth through Ambition”
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.

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.