Opinion on  Satyam Computer Services Ltd. (SAY)     Sector: Technology  >  Industry: Software & Programming
Satyam Computer Services (SAY)

Yesterday afternoon I was going through the list of top % gainers and came across an 'old favorite' of mine on the page. (I loosely use the term 'old favorite' when I see the name of a stock that I have previously reviewed on this blog!) Satyam Computer Services (SAY) made the list closing at $24.60, up $1.13 or 4.81% on the day. I first reviewed Satyam a little over a year ago on December 15, 2005 , when the stock was trading at $36.11. On October 18, 2006, Satyam declared a 2:1 stock split making my effective pick price actually $18.06. With yesterday's close at $24.60, this represents a gain of $6.54 or 36.2% since posting.

I do not own any shares nor do I have any options on this stock.

Let's take a closer look at this stock, and I will show you why I believe Satyam still deserves a spot on this blog and why

SATYAM (SAY) IS RATED A BUY

What exactly does this company do?

According to the Yahoo "Profile" on Satyam (SAY) , the company

"...together with its subsidiaries, operates as a consulting and information technology (IT) services company. The company provides various IT services, including, application development and maintenance services, consulting and enterprise business solutions, extended engineering solutions, and infrastructure management services. It offers consulting and enterprise business solutions services in the areas of enterprise resource planning, customer relationship management and supply chain management, data warehousing and business intelligence, knowledge management, document management, and enterprise application integration."

How did the company do in the latest quarter?

On January 19, 2007, Satyam announced 3rd quarter 2007 results . Revenue for the quarter came in at "Rs. 1661.12 crore" up 31.3% year over year and up 3.7% sequentially. Net profit came in at "Rs. 337.23 crore" representing a year-over-year growth of 25.02%. Earnings came in at "Rs. 5.14" representing a 23% increase over last year's results. In addition, the company revised guidance upwards to "Rs 20.90" from previous estimate of "Rs. 20.73 to Rs. 20.81". (With Satyam based in India, results are posted in Rupees (Rs).)

How has the company done longer-term?

Reviewing the Morningstar.com "5-Yr Restated" Financials on Satyam (SAY) , we can see the steady revenue growth from $415 million in 2002 to $1.1 billion in 2006. During this time, earnings have steadily increased from $.26/share in 2003 to $.75/share in 2006. The company initiated dividends in 2005 at $.10/share and increased this payout to $.11/share in 2006. Shares outstanding have been very stable with 317 million shares reported in 2003, increasing only to 320 million in 2006 and 324 million in the trailing twelve months (TTM). This is less than a 2% increase in the float while revenue was up over 100% and earnings 200%.

Free cash flow has been positive and improving with $73 million reported in 2004 and $109 million in free cash flow in 2006.

The balance sheet is pristine with $696.5 million in cash, which alone could cover both the $139.1 million in current liabilities and the $47.7 million in long-term liabilities more than 3x over! Calculating the current ratio, the combined $1.02 billion in total current assets, when compared to the $139.1 million in current liabilities yields a Current Ratio of 7.32. Generally a ratio of 1.25 or higher is considered 'healthy'! This is one of the highest current ratios of any stock on the blog!

What about some valuation numbers?

Taking a look at Yahoo "Key Statistics" on this company, we can see that Satyam (SAY) is a large cap stock with a market capitalization of $8.08 billion. The trailing p/e is a reasonable 27.64 with a forward p/e (fye 31-Mar-08) estimated at 24.12. With the steady growth, the PEG (5 yr expected) comes in at a reasonable 1.09. (reasonable for me is 1.0 to 1.5).

According to the Fidelity.com eresearch website , the Price/Sales (TTM) for SAY is a bit rich at 5.93, with an industry average reported to be at 4.17.

Profitability, as measured by the Return on Equity (ROE) is a little better than the average company in its industry, coming in at 25.31% with an average reported to be 22.18%.

Back to Yahoo: there are 328.55 million shares outstanding with 299.6 million that float. As of 3/12/07, there were 2.1 million shares out short representing 2.1 trading days of volume (the short interest). This does not appear very significant to me.

As noted above, the company pays a dividend with a forward dividend now at $.15/share, yielding .6%. The last stock split, as I already noted, was on October 18, 2006, when the company issued a 100% stock dividend, splitting its shares 2:1.

What does the chart look like?

Looking at the "Point & Figure" Chart on Satyam (SAY) from StockCharts.com , we can see that the upward move on this price chart is essentially undisturbed. Recently, the stock had a small correction betwen $22/share in April, 2006, to a low of $14/share in June, 2006, before resuming its upward move to its current level of $24.60, near its all-time high of $25. The chart looks strong to me.

Summary: What do I think about this stock?

Well, I like the numbers and the financial performance. I have some personal concerns about the effects of outsourcing, but I do believe this is a trend that we shall all need to be dealing with in the future. The latest quarter was strong, the company has been performing nicely the past four years with steady revenue, earnings and free cash flow growth. The number of outstanding shares is stable. They have initiated a dividend and are already increasing it. The balance sheet is solid. Valuation is reasonable with a PEG under 1.5. The Price/Sales is a bit rich, but the Return on Equity is ahead of its peers. Finally the chart looks nice.

There is little not to like quite frankly. It is a foreign stock and there is a bit of a leap of faith in dealing with companies based outside the United States but the world is getting smaller all the time and portfolios deserve to include the best companies and wherever I can find reasonably reliable numbers (and my Morningstar reports!), I feel comfortable adding companies like this to my 'vocabulary' of investing!

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

As I just wrote up on my last entry, my Coach Stock (COH) has been an absolutely phenomenal performer in my portfolio.  The stock hit an appreciation target and I sold 1/7th of my position.  Being under my maximum (my new level) of 20 positions, I thus had a "permission slip" to add a new position to the mix.

And you know how I love to buy stocks!

Anyhow, checking the list of top % gainers today, I immediately saw a stock that I recently reviewed, Satyam Computer Services (SAY), trading at $25.81, up $1.87 or 7.91% on the day.  The company released earnings early today that showed revenue up 36.7% from a year earlier and earnings up 38.6% for the quarter as well.  This strong performance was enough to get the stock onto the top % gainers list and was enough to get my attention as well!

I often talk about the 'vocabulary' of stocks in making investing decisions.  Having a bunch of 'candidates' that are 'investable' helps me make a relatively quick decision as I did.  These decisions aren't always successful as my recent sale of Medtox demonstrates, but it helps being an informed investor.  And that is what my homework is all about!

Wish me luck!

Thanks so much for dropping by!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance be sure and visit my Stock Picks Podcast Website where I talk about some of the stocks I have been writing about here on the blog.

Bob

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

As I like to do from time to time on this blog, I would like to share with you the current status of my Trading Portfolio.  I last wrote up my "trading portfolio update" on June 7, 2007, a month ago.  There have been a few changes since then.  But the biggest development has been my partipation in Covestor.  You now can check my Covestor page and see the daily changes, all trades, and my performance relative to the indices and other registered investors.  Thus far, I have been doing quite well as it has been a fortunate month for me especially with he Ventana bid by Roche.  I am always grateful when my portfolio and my investing strategy is woking; but I am aware that there will be times when nothing seems to work.  Sometimes the most successful approach is about persistence and patience.

This past month also found me shaken-out of Gildan Activewear, which seemed to almost know I had sold on a dip and gleefully turned around to move higher making the top % gainers list that same day! O.K. that's a bit too anthropomorphic, but still, don't you just hate those days sometimes :).

So I am back to 19 positions.  Let's take a look at them and I will share with you in order: the symbol, number of shares, date of purchase, price of purchase, latest price (7/6/07), and percentage gain (or loss).

Baldor Electric Co. (BEZ), 140 shares, 5/22/07, $47.19, $50.04, 6.04%.

Bolt Technology (BTJ), 129 shares, 1/12/07, $17.44, $56.43, 223.63%

Cerner (CERN), 120 shares, 2/2/07, $49.76, $58.23, 17.02%

Coach (COH), 61 shares, 2/25/03, $8.33, $49.37, 492.58%

Covance (CVD), 119 shares, 4/9/07, $62.61, $70.19, 12.10%

Hologic (HOLX), 120 shares,  1/31/07, $55.58, $56.46, 1.58%

Harris (HRS), 120 shares, 1/31/07, $50.05, $55.91, 11.71%

Kyphon (KYPH), 125 shares, 5/20/05, $29.21, $53.18, 82.03%

Mesa Labs (MLAB), 210 shares, 5/23/07, $24.05, $24.75, 2.90%

Morningstar (MORN, 140 shares, 11/22/05, $32.57, $47.61, 46.16%

MEDTOX Scientific (MTOX), 350 shares, 6/26/07, $28.58, $29.89, 4.57%

Precision Castparts (PCP), 86 shares, 10/24/06, $69.05, $127.82, 85.11%

Quality Systems (QSII), 88 shares, 7/28/03, $7.75, $39.04, 403.82%

ResMed (RMD), 150 shares, 2/4/05, $29.87, $41.72, 39.68%

Satyam Computer Services (SAY), 210 shares, 4/20/07, $25.55, $26.25, 2.73%

Starbucks (SBUX), 50 shares, 1/24/03, $11.40, $26.55, 132.80%

Universal Electronics (UEIC), 155 shares, 2/23/07, $25.24, $36.78, 45.72%

Meridian Bioscience (VIVO), 270 shares,  4/21/05, $7.42, $22.00, 196.54%

Wolverine World Wide (WWW), 200 shares, 4/19/06, $23.55, $28.51, 21.08%

Since my last review on June 7, 2007, I sold 23 shares of Ventana at $76.83, and the rest of the 139 shares of Ventana (VMSI) at $76.502 later the same day on 6/26/07.  On that day I purchased 350 shares of MEDTOX at $28.5534, Bolt hit another appreciation target and I sold 1/7th of my holding (21 shares) at $50.52.  Finally, on 7/5/07, I sold my 210 shares of Gildan at $33.1101 when it hit an (8)% loss after purchase.

Currently I am at 19 positions.  My equity value is $119,962.09, my margin balance is at $56,031.51, giving me a 53.29% margin equity percentage.  As of 7/6/07, I have $33,571.01 in unrealized gains in my account, and with the above trades have taken $3,100.15 in net short-term gains, and $17,824.18 in net long-term gains for a total of $20,924.33 in realized gains for 2007.  I also have paid $2,563.07 in margin interest and have received a total of $272.58 in ordinary dividends and distributions and miscellaneous income.

Please let me know if you have any comments or questions regarding my Trading Account.  Please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  If you get a chance, be sure and visit my Stock Picks Bob's Advice Covestor page, where you can see a third-party analysis of my holdings and performance.  

Bob