Financial And Healthcare Markets And AI Will Expand Opportunities

Key Takeaways

• TTEC's expansion into diverse markets and investment in AI and offshore delivery is expected to boost revenue and net margins.
  
• Strategic hiring and focus on recurring managed services are poised to enhance revenue stability and earnings growth.
  
• TTEC's revenue and margins face challenges due to client decisions, muted healthcare seasons, high taxes, and potential geopolitical risks from geographic expansion.

Catalysts

Operates as a customer experience (CX) company that designs, builds, and operates technology-enabled customer experiences across digital and live interaction channels.

• TTEC's diversification strategy and expansion into new geographic markets and industries, such as financial services, healthcare, and emerging verticals like retail and travel, is expected to drive future top-line revenue growth.
  
• The company's investment in AI capabilities, which are integrated across all operations to enhance service quality and efficiency, is likely to improve operational efficiency, potentially increasing net margins.
  
• The strategic hiring of experienced professionals to strengthen the TTEC Engage management team should accelerate sales momentum and client expansion, potentially boosting revenue growth and improving earnings.
  
• The growth in recurring managed services within TTEC Digital, an area that saw a 10.2% increase, suggests a move towards more stable and predictable revenue streams, which could enhance earnings stability.
  
• The push towards offshore delivery to meet client needs for cost-effective solutions is expected to provide cost savings and improve net margins, translating into better bottom-line performance.

TTEC Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TTEC Holdings's revenue will decrease by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -14.5% today to 0.7% in 3 years time.
• Analysts expect earnings to reach $13.6 million (and earnings per share of $0.91) by about May 2028, up from $-321.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.0x on those 2028 earnings, up from -0.6x today. This future PE is greater than the current PE for the US Professional Services industry at 20.7x.
• Analysts expect the number of shares outstanding to grow by 0.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

TTEC Holdings Future Earnings Per Share Growth

Risks

• TTEC's top-line revenue growth faces challenges due to client decisions unrelated to the company's performance, a muted open enrollment healthcare season, and the rationalization of less profitable client engagements, potentially impacting future revenues.
  
• The company experienced a significant revenue decline year-over-year from $2.46 billion to $2.21 billion, a decrease of 10.4%, primarily driven by a decrease in large client orders and a muted healthcare enrollment season, which negatively impacts earnings.
  
• TTEC reported negative cash flow from operations in 2024, attributing part of this to the discontinuation of an accounts receivable factoring facility, which could impede future liquidity and investment capabilities.
  
• The company's high tax rate of 40.9%, as opposed to 22.7% the previous year, caused by U.S. valuation allowance adjustments, may continue to affect net margins adversely.
  
• Relying on continued geographic expansion and offshore delivery could create risks if geopolitical or currency fluctuations occur, which might adversely impact operating income and margins.

Valuation

• The analysts have a consensus price target of $5.733 for TTEC Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.85, and the most bearish reporting a price target of just $3.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $13.6 million, and it would be trading on a PE ratio of 28.0x, assuming you use a discount rate of 11.4%.
• Given the current share price of $3.96, the analyst price target of $5.73 is 30.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.