The Corporate Restructuring Report-Conduent Inc (CNDT) Update
Conduent Inc. (NYSE: CNDT) was spun off from Xerox Corporation (NYSE:XRX) on December 31, 2016. We have been positive on the company's prospects given the management's utrnaround efforts. The recently released 4Q17 results were robust with adjusted EBITDA growing at ~9% YOY and margins expanding by 80 bps compared to prior year period. The management guided for a strong FY18 with adjusted EBITDA expected to increase by 8%-12% compared to FY17 and we expect more such moves in 2018 as well. The proceeds from divestment of non-core low margin businesses could be used for reducing leverage or pursuing acquisitions. CNDT's borrowing costs are relatively high and any potential deleveraging is a clear positive for the company.
Conduent's cost cutting efforts are gaining traction more quickly than first anticipated with realizations of $475 million in FY17 (vs. expectation of $430 million). Further, CNDT expects to achieve $700 million in cumulative cost savings by FY18 which should drive margins and help narrow the gap with peers. The company noted of achieving organic growth of 2%-3% beyond FY18 and potentially target to reach industry growth levels with the help of M&A. We believe the company's turnaround efforts are likely to provide a catalyst for higher valuation in the coming quarters. In our view, CNDT is undervalued.
Conduent is a holding company. Through its subsidiaries, the company is a provider of business process services in transaction-intensive processing, analytics and automation. The company's Commercial Industries segment provides business process services and customized solutions to clients in a variety of industries. The company's Government Services segment provides government-centric business process services to U.S. federal, state and local and foreign governments for transportation, public assistance, program administration, transaction processing and payment services. The company's Transportation segment provides systems and support services to transportation departments and agencies globally.
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