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3 Stocks From the Promising Outsourcing Space to Watch Out For
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Operational efficiency and reduced expenses in the wake of the coronavirus crisis-induced work-from-home wave, and increased adoption of cloud computing and other emerging technologies bode well for the Zacks Outsourcing industry. These drive competitive advantage, and increase innovation and speed-to-market.
Genpact Limited (G - Free Report) , The Brink's Company (BCO - Free Report) and Conduent Incorporated (CNDT - Free Report) are some stocks, which are likely to gain from the abovementioned industry trends. However, rising data security issues, thanks to increased dependency on technology, are concerns for the industry.
Industry Description
Outsourcing is the practice of transferring control of certain operations, services or processes, previously done by the company’s internal staff and resources, to external resources or third-party contractors to improve operating efficiency by focusing on core business competencies. The Zacks Outsourcing industry comprises companies that are engaged in providing human capital management solutions, business management solutions and information technology solutions for human resource, payroll, benefits, retirement and insurance services for small- to medium-sized businesses. Some industry participants also provide business process services with capabilities in transaction-intensive processing, analytics, and automation in the United States and abroad.
What's Shaping the Future of Outsourcing Industry?
A Healthy Demand Environment: The industry has witnessed growth in revenues, income and cash flow over the past few years, enabling most players to pursue acquisitions and other investments and pay out stable dividends. Increasing demand for expertise in improving efficiency and reducing costs has been aiding the industry over the past several years.
Increased Adoption of Technologies: Most of the industry participants are also considering emerging technologies such as cloud computing to drive competitive advantage, increase innovation, improve speed-to-market and drive performance within the industry. Wider application of artificial intelligence (AI) is expected to be the biggest change due to the pandemic. Adoption of AI should lower complications and simplify operations. This should aid the industry.
Notably, industry players are in the process of modernizing their traditional legacy-oriented business processes in order to keep themselves flexible amid any kind of operating environment.
Rising Security Issues and Remedies: COVID-19 led increased dependency on technology has led to growing cases of hacking, identity theft and malicious payload deliveries. With work-from-home models being the new-normal professional scenario, remote infrastructure vulnerabilities and security gaps are being exploited to secure unauthorized access to proprietary systems and data.
As a preventive measure to enhance data security and ensure cyber-resilience, increased implementation of secure access technologies such as VPNs, two-factor authentication and other ID and access-management controls for home workers, as well as increased monitoring and threat-detection tools are being used. Outsourced service providers are also updating organizational policies (including Bring Your Own Device and work from home policies) and data breach protocols in order to reduce security risk. Adequate training of employees about emerging threats and data security issues is also being prioritized by several companies.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Outsourcing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #124. This rank places it in the top 50% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The buy-side analysts covering the companies in this industry have been increasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has increased 6.4%.
Before we present a few stocks that investors can buy or retain given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry's Performance
The Zacks Outsourcing industry has outperformed the broader Zacks Business Services sector but has underperformed the Zacks S&P 500 composite over the past year.
The industry has gained 36.3% over this period compared with 2.5% rally of the broader sector and 40.7% increase of the Zacks S&P 500 composite.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing outsourcing stocks, the industry is currently trading at 24.37X compared with the S&P 500’s 21.86X and the sector’s 30.02X.
Over the past five years, the industry has traded as high as 24.37X, as low as 17.32X and at the median of 22.2X, as the charts below show.
Conduent Incorporated: This Zacks Rank #2 New Jersey-based company provides business process services with capabilities in transaction-intensive processing, analytics, and automation in the United States, Europe, and internationally.
The company has been enjoying COVID-related benefit in its government business. Increased volumes and new business ramp have been contributing to top-line growth. Improvement in operational and technology performance and reduction in expenses have been aiding the company’s bottom line. Improvements in service delivery have resulted in improved client retention. Further, the company has raised the lower end of its revenue guidance for 2021. Revenues are now anticipated between $4.05 and $4.15 billion compared with the prior guidance of $4-$4.15 billion. The Zacks Consensus Estimate of $4.11 billion lies within the updated guidance.
The Zacks Consensus Estimate for current-year EPS has improved 10.3% in the past 90 days. The stock has gained 84.4% over the past six months.
Price & Consensus: CNDT
The Brink's Company: This Zacks Rank #2 Virginia-based company provides secure transportation, cash management, and other security-related services in North America, Latin America, Europe, and internationally.
Acquisitions and sustainable cost reductions have helped the company witness growth, amid COVID-induced market uncertainties. Further, the company has raised its guidance for 2021. Revenues are now anticipated between $4.25 and $4.65 billion compared with the prior guidance of $4.10-$4.50 billion. The Zacks Consensus Estimate of $4.35 billion lies within the updated guidance. Adjusted EBITDA is now anticipated between $660-$750 million compared with the prior guidance of $640-$730 million. Free cash flow is now anticipated between $185-$275 million compared with the prior guidance of $175-$265 million.
The Zacks Consensus Estimate for current-year EPS has improved 6% in the past 90 days. The stock has gained 13.5% over the past six months.
Price & Consensus: BCO
Genpact Limited: This Zacks Rank #3 Bermuda-based company provides business process outsourcing and IT services North and Latin America, India, rest of Asia, and Europe. Genpact enjoys a competitive position in the BPO services market based on domain expertise in business analytics, digital and consulting. Acquisitions have been helping it in expanding product portfolio and gaining new domain expertise. Artificial intelligence offers ample growth opportunities amid COVID-induced dependency on technology. Consistency in rewarding shareholders through dividend payments and share repurchases boost investor confidence and positively impact earnings per share.
For 2021,the company has raised its guidance. Adjusted earnings per share are (EPS) currently anticipated in the range of $2.27-2.30 (previous guidance: $2.26-2.29 per share). Revenues for 2021 are anticipated to be between $3.93 and $3.99 billion.
The Zacks Consensus Estimate for current-year EPS has improved 0.4% in the past 90 days. The stock has gained 11.2% over the past six months.
Price & Consensus: G
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Image: Bigstock
3 Stocks From the Promising Outsourcing Space to Watch Out For
Operational efficiency and reduced expenses in the wake of the coronavirus crisis-induced work-from-home wave, and increased adoption of cloud computing and other emerging technologies bode well for the Zacks Outsourcing industry. These drive competitive advantage, and increase innovation and speed-to-market.
Genpact Limited (G - Free Report) , The Brink's Company (BCO - Free Report) and Conduent Incorporated (CNDT - Free Report) are some stocks, which are likely to gain from the abovementioned industry trends. However, rising data security issues, thanks to increased dependency on technology, are concerns for the industry.
Industry Description
Outsourcing is the practice of transferring control of certain operations, services or processes, previously done by the company’s internal staff and resources, to external resources or third-party contractors to improve operating efficiency by focusing on core business competencies. The Zacks Outsourcing industry comprises companies that are engaged in providing human capital management solutions, business management solutions and information technology solutions for human resource, payroll, benefits, retirement and insurance services for small- to medium-sized businesses. Some industry participants also provide business process services with capabilities in transaction-intensive processing, analytics, and automation in the United States and abroad.
What's Shaping the Future of Outsourcing Industry?
A Healthy Demand Environment: The industry has witnessed growth in revenues, income and cash flow over the past few years, enabling most players to pursue acquisitions and other investments and pay out stable dividends. Increasing demand for expertise in improving efficiency and reducing costs has been aiding the industry over the past several years.
Increased Adoption of Technologies: Most of the industry participants are also considering emerging technologies such as cloud computing to drive competitive advantage, increase innovation, improve speed-to-market and drive performance within the industry. Wider application of artificial intelligence (AI) is expected to be the biggest change due to the pandemic. Adoption of AI should lower complications and simplify operations. This should aid the industry.
Notably, industry players are in the process of modernizing their traditional legacy-oriented business processes in order to keep themselves flexible amid any kind of operating environment.
Rising Security Issues and Remedies: COVID-19 led increased dependency on technology has led to growing cases of hacking, identity theft and malicious payload deliveries. With work-from-home models being the new-normal professional scenario, remote infrastructure vulnerabilities and security gaps are being exploited to secure unauthorized access to proprietary systems and data.
As a preventive measure to enhance data security and ensure cyber-resilience, increased implementation of secure access technologies such as VPNs, two-factor authentication and other ID and access-management controls for home workers, as well as increased monitoring and threat-detection tools are being used. Outsourced service providers are also updating organizational policies (including Bring Your Own Device and work from home policies) and data breach protocols in order to reduce security risk. Adequate training of employees about emerging threats and data security issues is also being prioritized by several companies.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Outsourcing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #124. This rank places it in the top 50% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The buy-side analysts covering the companies in this industry have been increasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has increased 6.4%.
Before we present a few stocks that investors can buy or retain given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry's Performance
The Zacks Outsourcing industry has outperformed the broader Zacks Business Services sector but has underperformed the Zacks S&P 500 composite over the past year.
The industry has gained 36.3% over this period compared with 2.5% rally of the broader sector and 40.7% increase of the Zacks S&P 500 composite.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing outsourcing stocks, the industry is currently trading at 24.37X compared with the S&P 500’s 21.86X and the sector’s 30.02X.
Over the past five years, the industry has traded as high as 24.37X, as low as 17.32X and at the median of 22.2X, as the charts below show.
Forward 12-month Price-to-Earnings (P/E)
3 Outsourcing Stocks to Keep a Close Eye On
We are presenting two stocks that carry a Zacks Rank #2 (Buy) and one stock that carries a Zacks Rank #3 (Hold). These stocks are well positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Conduent Incorporated: This Zacks Rank #2 New Jersey-based company provides business process services with capabilities in transaction-intensive processing, analytics, and automation in the United States, Europe, and internationally.
The company has been enjoying COVID-related benefit in its government business. Increased volumes and new business ramp have been contributing to top-line growth. Improvement in operational and technology performance and reduction in expenses have been aiding the company’s bottom line. Improvements in service delivery have resulted in improved client retention. Further, the company has raised the lower end of its revenue guidance for 2021. Revenues are now anticipated between $4.05 and $4.15 billion compared with the prior guidance of $4-$4.15 billion. The Zacks Consensus Estimate of $4.11 billion lies within the updated guidance.
The Zacks Consensus Estimate for current-year EPS has improved 10.3% in the past 90 days. The stock has gained 84.4% over the past six months.
Price & Consensus: CNDT
The Brink's Company: This Zacks Rank #2 Virginia-based company provides secure transportation, cash management, and other security-related services in North America, Latin America, Europe, and internationally.
Acquisitions and sustainable cost reductions have helped the company witness growth, amid COVID-induced market uncertainties. Further, the company has raised its guidance for 2021. Revenues are now anticipated between $4.25 and $4.65 billion compared with the prior guidance of $4.10-$4.50 billion. The Zacks Consensus Estimate of $4.35 billion lies within the updated guidance. Adjusted EBITDA is now anticipated between $660-$750 million compared with the prior guidance of $640-$730 million. Free cash flow is now anticipated between $185-$275 million compared with the prior guidance of $175-$265 million.
The Zacks Consensus Estimate for current-year EPS has improved 6% in the past 90 days. The stock has gained 13.5% over the past six months.
Price & Consensus: BCO
Genpact Limited: This Zacks Rank #3 Bermuda-based company provides business process outsourcing and IT services North and Latin America, India, rest of Asia, and Europe. Genpact enjoys a competitive position in the BPO services market based on domain expertise in business analytics, digital and consulting. Acquisitions have been helping it in expanding product portfolio and gaining new domain expertise. Artificial intelligence offers ample growth opportunities amid COVID-induced dependency on technology. Consistency in rewarding shareholders through dividend payments and share repurchases boost investor confidence and positively impact earnings per share.
For 2021,the company has raised its guidance. Adjusted earnings per share are (EPS) currently anticipated in the range of $2.27-2.30 (previous guidance: $2.26-2.29 per share). Revenues for 2021 are anticipated to be between $3.93 and $3.99 billion.
The Zacks Consensus Estimate for current-year EPS has improved 0.4% in the past 90 days. The stock has gained 11.2% over the past six months.
Price & Consensus: G
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>