With so many companies looking to cut costs, one would think that Concur Technologies (CNQR.O) would benefit. Concur’s software solutions enable organizations to automate the processes used to manage employee spending. However, companies are also paying less for these solutions and that may be hurting Concur’s profits. It has a poor StarMine Earnings Quality (EQ) model score of 6.
As you can see in the chart below, operating profit margins have been trending lower. Just five years ago, operating profit margins (green line) was at almost 20%. It is now close to 0%. In 2009, Concur’s products may helped cut costs, but now that the cost-cutting has taken place, the only way to further reduce costs is by paying less for Concur’s services. In the last quarter, gross margin fell by 5 percentage points, and that could hurt future earnings. Also, Concur’s expenses are going up as it seeks to increase revenue.
Source: Eikon/StarMine
Looking at exclusions
The chart below shows that pro-forma earnings consistently exceed filed GAAP earnings (represented by the red part of the bars). What that means is that when Concur reports earnings, it is asking investors to ignore certain costs/expenses as they are not part of daily business. It does report these in the GAAP filings. When these exceptional items creep up in every quarter, one may question if they are truly one-time items, be it from discontinued operations or sale of segments. In the long run GAAP earnings tend to be more accurate.
Source: Eikon/StarMine
Not a value stock
So how does Concur perform on the other StarMine models? Not so well. As you can see in the chart below, the company does not appear cheap, as seen by the poor StarMine valuation scores. Based on the current stock price, using the StarMine Intrinsic Valuation (IV) model, we calculate the growth rate required to justify the current stock price, and that annual 10 year growth rate turns out to be 29% (market implied growth rate). That seem rather optimistic compared to the StarMine calculated SmartGrowth rate of 11%. Analysts don’t seem terribly optimistic about earnings prospects either as indicated by the weak StarMine Analyst Revisions Model (ARM) score of 10. The one thing going for Concur is that it does not seem to have issues with the balance sheet and it does not seem to be in any financial distress.
Source: Eikon/StarMine
Long term outlook
Chairman and CEO S. Steven Singh has pledged to continue to spend money to grow Concur. The company still generated more than 80% of its earnings from North America, which gives it several growth regions. Some of that is reflected in the 35% increase in R&D expenses in 2013 and that trend is likely to continue, based on management comments. While it is possible that this may eventually lead to rising earnings in the near term, Concur’s challenge will be overcoming its poor earnings quality.
Receive stories like this to your inbox as they are published. Subscribe here and follow us @Alpha_Now on Twitter. If you are looking to access our data or analytics, register for a free trial.
