) have soared 30.8% over the past year. The predicted earnings
growth rate for this information technology (IT) services company
is 23.3% over the next five years, which is higher than the 20.0%
expected for the industry. Moreover, management's commentary about
an improving demand trend could well be the driving force behind
this Zacks #1 Rank's (Strong Buy) aggressive growth.
Client Growth Leads to Q1 Beat
On July 30, 2012, Virtusa reported first quarter earnings per share
(EPS) of 24 cents, up 50.0% from the year-ago quarter and ahead of
the Zacks Consensus Estimate by 9.1%.
Revenues grew 24.9% year over year to $76.2 million, driven by new
client growth and higher contribution from existing clients.
Virtusa witnessed increasing demand for its application outsourcing
services, partially offset by soft demand for its consulting
services. Both the Americas and Europe contributed.
Virtusa provided encouraging second quarter and fiscal 2013
guidance. Revenue for the quarter is expected between $78.5 million
and $80.5 million with EPS of 21 cents to 25 cents. For fiscal
2013, revenue is seen between $320.0 million and $330.0 million
with EPS of $1.01 to $1.13.
Earnings Estimates Revised Higher
Over the last 60 days, the Zacks Consensus Estimate for 2013 has
advanced by 2.9% to $1.06, while the Zacks Consensus Estimate for
2014 is up 3.2% to $1.30. The estimate for fiscal 2013 represents
an increase of 33.7% from fiscal 2012, while the estimate for
fiscal 2014 represents a year-over-year increase of 23.2%.
Valuation is Attractive
Considering the company's earnings prospects, its valuation looks
attractive on a PEG basis. The stock has a PEG ratio of 0.7,
compared with the peer group's 2.6, indicating potential upside.
The stock's return on equity (ROE) is 10.5%, which is higher than
the peer average of 8.5%. Virtusa is currently trading at a P/E of
17.1X, which is at a premium of 17.1% from the peer group average
of 14.6X. The premium looks justified given its growth prospects.
Chart Represents Growth Potential
The 12-month EPS chart clearly shows that both share prices and
earnings have trended up over the last few years. The current
momentum appears to be driven by the growing client base and price
increases supported by estimate growth trends.
Currently, the share price is in the range of $18.00-$19.00. The
consensus estimates for 2013 and 2014 are trending upward. The
estimate revision graph indicates a steep upward trend through
fiscal 2015. As illustrated in the chart below, share prices should
increase at a similar or higher rate than the estimate revision
Massachusetts-based Virtusa has roughly 16 years of experience in
providing IT services, globally. The company's service offerings
include IT consulting, implementation and application outsourcing.
Virtusa helps its clients simultaneously reduce their IT operations
cost while increasing their ability to meet changing business
needs. Currently, the company operates in the United States, the
United Kingdom, the Netherlands, Germany and Singapore and has
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