ALEX MOTOLA
PORTFOLIO MANAGER
THORNBURG CORE GROWTH FUND

COMPANY: Amdocs
TICKER: DOX (NYSE)
PRICE: $34.95 (as of 4 p.m. Friday)
52-WEEK RANGE: $24.30-$36.20
MARKET CAPITALIZATION: $7.04 billion

Alex Motola is a portfolio manager at the Thornburg Core Growth Fund (THCGX), with more than $400 million under management. Amdocs provides billing software solutions to phone companies. Mr. Motola spoke to David Dalley of The New York Sun about why he believes the stock could increase by 20% over the next year.

What does Amdocs do?

They provide billing services software and support to help phone companies run their billing operations. Their clients include Sprint Nextel, Southwestern Bell, and others.

Why do you like the stock?

We’ve liked it for a long time. It’s a dominant player in the industry, its valuation is pretty attractive, and there’s plenty of room for them to continue to extend their lead. Also, as you get more consolidation in the phone industry, and as phone companies offer more and more complex services to customers, Amdocs will benefit.

Why’s that?

New technologies and services such as broadcast TV, new ring tones, and Voice-Over IP all need to be billed correctly. Phone companies typically spend about 1% to 2% of revenue on billing. It’s a critical part of their operations. Amdocs is the clear leader in the field. They create the software and they provide the support to run it.

What do you think the stock’s worth?

For the fiscal year ending September 2007, we estimate earnings to be around $2.10 a share.You could reasonably capitalize that number at a 20 multiple, so I think the stock could be at around $42 by the end of this year. I think that next year it could reasonably trade above $50.

What’s driving growth?

Phone companies increasing their range of services, for one. Also, consolidation in the industry. When larger telephone companies buy smaller players, they need to consolidate billing, and that creates business for Amdocs.

They’ve also made two acquisitions over the last year or so. They purchased a company called Innovis that gives them an entry into billing for cable companies. They can basically offer their existing product platforms to cable companies, which require very similar billing services. They also bought a company called Longshine, which does billing in China. That’s given them a foothold in that country, and they can start rolling out their services there now, too.

What are the risks?

We’ve already seen one of the risks play out. Amdocs used to be a darling stock, and traded at a huge multiple. In the aftermath of the Internet bubble bursting, phone companies pulled back spending and that really affected the industry. These guys continued to grow revenue, but the environment can sometimes be challenging, so that’s a risk.

Is there much competition in the industry?

Convergys is the biggest competitor, but they have an inferior product. Amdocs has a complete suite of products and support.When you’re a phone company, you want a robust system. You don’t want to have to have multiple systems to make it work. Amdocs has a compelling product because it offers the full suite.