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The Zacks Outsourcing industry has experienced significant growth, driven by various economic, technological and business factors. Key drivers include the pursuit of cost savings, access to a pool of skilled talent, and the opportunity to focus on core competencies.
Broadridge Financial Solutions, Inc. (BR - Free Report) , Barrett Business Services, Inc. (BBSI - Free Report) and Conduent Incorporated (CNDT - Free Report) can be considered by investors from the in-focus Outsourcing market.
About the Industry
Outsourcing involves delegating a company's internal operations to external resources or third-party contractors to enhance operational efficiency. Within the Zacks Outsourcing sector, you'll find companies that provide human capital, business management and IT solutions, primarily catering to small and medium-sized enterprises. These services encompass a broad spectrum, including HR support, payroll management, benefits administration, retirement planning and insurance services. Certain firms excel in delivering business process services, with a strong focus on transaction processing, analytics and global automation solutions. This outsourcing approach empowers businesses to concentrate on their core competencies while external experts manage these critical functions.
4 Trends Shaping the Future of Outsourcing Industry
Rising Demand Environment: The industry has gained traction over the past year, thanks to the recent advancements in the field of technology and the onset of remote work. Revenues, income and cash flows have been growing in the past year, aiding many industry players to increase dividends.
Continued growth of Business Process and IT Outsourcing: The demand for business process outsourcing services remains high due to their advantages, including greater flexibility, cost reduction and improved service quality. The IT outsourcing market is also in good shape. In the future, outsourced IT services will cover a wide range of functions, including programming and technical support. Organizations can outsource entire IT departments to cut costs and focus on core tasks. A significant driver of outsourcing trends will be the shortage of in-house engineering talent.
Rising importance of cybersecurity: Heightened public awareness and evolving cyber threats, like ransomware and national-level cyberattacks, have led to a growing demand for robust data encryption and cybersecurity measures. Companies prioritize employee security awareness training and breach detection systems to prevent cybersecurity incidents. To address these challenges, businesses increasingly turn to outsourced cybersecurity services to mitigate risks, maintain compliance and support scalability in their operations.
Emerging trends of technology: Trends like the Internet of Things (IoT), cloud computing, Artificial Intelligence (AI) and Machine Learning (ML) are on the verge of reshaping the outsourcing sector. These innovations propel efficiency, foster innovation and bolster competitiveness, altering the delivery of outsourcing services and opening novel avenues for businesses to enhance their operational efficiency. For instance, IoT data can be collected, processed and analyzed in the cloud, enabling real-time decision-making and predictive maintenance for clients. By integrating AI and ML into customer support outsourcing, companies can provide faster, more efficient and consistent customer support while optimizing operational costs.
Zacks Industry Rank Indicates Dull Near-Term Prospects
The Zacks Outsourcing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #220. This rank places it in the bottom 12% of 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates continued underperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry's Price Performance
The Zacks Outsourcing industry has lagged the broader Zacks Business Services sector and the Zacks S&P 500 composite over the past year.
The industry has gained 16.9% over this period compared with the 21.9% growth of the broader sector and the 26.5% 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), commonly used for valuing outsourcing stocks, the industry is currently trading at 22.57X compared with the S&P 500’s 20.88X and the sector’s 26.21X.
In the past five years, the industry has traded as high as 30.82X and as low as 18.23X, with the median being 24.4X, as the charts below show.
Conduent: The company is a global provider of digital business solutions and services to commercial, government and transportation clients. It is currently focused on rationalizing its portfolio to increase revenue generation opportunities. The approach should help CNDT free up capital for the purpose of reducing debt, buying back shares and pursuing other opportunities that promise growth.
The Zacks Consensus Estimate for CNDT’s 2024 earnings has been revised 56.6% northward in the past 60 days to $1.66.
Price & Consensus: CNDT
Barrett Business Services: The company offers business management solutions tailored for small and mid-sized enterprises across the United States.
With a growing client base, it is experiencing an expansion in gross billings. The company remains buoyed by successful marketing efforts, the introduction of new products and the implementation of BBSI Benefits. With these factors driving momentum, the outlook for 2024 is optimistic, positioning the company for a robust performance.
The Zacks Consensus Estimate for the company’s 2024 earnings has been revised 2.2% northward in the past 60 days to $7.95.
Price & Consensus: BBSI
Broadridge Financials: It is a global fintech firm known for providing tech-driven solutions and investor communication services to banks, broker-dealers, asset managers and issuers, with a reputation for producing and distributing critical financial documents.
The company’s robust business model, driven by growing recurring fee revenues and strategic acquisitions, positions it well for revenue growth, supported by a diverse product portfolio. Broadridge excels in implementing its growth strategy in governance, capital markets and wealth management, seizing opportunities in the tech solutions space, including digital, AI, cloud and blockchain, through acquisitions.
The Zacks Consensus Estimate for fiscal 2024 earnings has remained unchanged over the past 60 days at $7.72.
Price & Consensus: BR
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3 Outsourcing Stocks to Buy Amid Industry Woes
The Zacks Outsourcing industry has experienced significant growth, driven by various economic, technological and business factors. Key drivers include the pursuit of cost savings, access to a pool of skilled talent, and the opportunity to focus on core competencies.
Broadridge Financial Solutions, Inc. (BR - Free Report) , Barrett Business Services, Inc. (BBSI - Free Report) and Conduent Incorporated (CNDT - Free Report) can be considered by investors from the in-focus Outsourcing market.
About the Industry
Outsourcing involves delegating a company's internal operations to external resources or third-party contractors to enhance operational efficiency. Within the Zacks Outsourcing sector, you'll find companies that provide human capital, business management and IT solutions, primarily catering to small and medium-sized enterprises. These services encompass a broad spectrum, including HR support, payroll management, benefits administration, retirement planning and insurance services. Certain firms excel in delivering business process services, with a strong focus on transaction processing, analytics and global automation solutions. This outsourcing approach empowers businesses to concentrate on their core competencies while external experts manage these critical functions.
4 Trends Shaping the Future of Outsourcing Industry
Rising Demand Environment: The industry has gained traction over the past year, thanks to the recent advancements in the field of technology and the onset of remote work. Revenues, income and cash flows have been growing in the past year, aiding many industry players to increase dividends.
Continued growth of Business Process and IT Outsourcing: The demand for business process outsourcing services remains high due to their advantages, including greater flexibility, cost reduction and improved service quality. The IT outsourcing market is also in good shape. In the future, outsourced IT services will cover a wide range of functions, including programming and technical support. Organizations can outsource entire IT departments to cut costs and focus on core tasks. A significant driver of outsourcing trends will be the shortage of in-house engineering talent.
Rising importance of cybersecurity: Heightened public awareness and evolving cyber threats, like ransomware and national-level cyberattacks, have led to a growing demand for robust data encryption and cybersecurity measures. Companies prioritize employee security awareness training and breach detection systems to prevent cybersecurity incidents. To address these challenges, businesses increasingly turn to outsourced cybersecurity services to mitigate risks, maintain compliance and support scalability in their operations.
Emerging trends of technology: Trends like the Internet of Things (IoT), cloud computing, Artificial Intelligence (AI) and Machine Learning (ML) are on the verge of reshaping the outsourcing sector. These innovations propel efficiency, foster innovation and bolster competitiveness, altering the delivery of outsourcing services and opening novel avenues for businesses to enhance their operational efficiency. For instance, IoT data can be collected, processed and analyzed in the cloud, enabling real-time decision-making and predictive maintenance for clients. By integrating AI and ML into customer support outsourcing, companies can provide faster, more efficient and consistent customer support while optimizing operational costs.
Zacks Industry Rank Indicates Dull Near-Term Prospects
The Zacks Outsourcing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #220. This rank places it in the bottom 12% of 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates continued underperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry's Price Performance
The Zacks Outsourcing industry has lagged the broader Zacks Business Services sector and the Zacks S&P 500 composite over the past year.
The industry has gained 16.9% over this period compared with the 21.9% growth of the broader sector and the 26.5% 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), commonly used for valuing outsourcing stocks, the industry is currently trading at 22.57X compared with the S&P 500’s 20.88X and the sector’s 26.21X.
In the past five years, the industry has traded as high as 30.82X and as low as 18.23X, with the median being 24.4X, as the charts below show.
Price to Forward 12-Month P/E Ratio
3 Outsourcing Stocks to Consider
Here are three stocks from the outsourcing space with a bright near-term prospect, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Conduent: The company is a global provider of digital business solutions and services to commercial, government and transportation clients. It is currently focused on rationalizing its portfolio to increase revenue generation opportunities. The approach should help CNDT free up capital for the purpose of reducing debt, buying back shares and pursuing other opportunities that promise growth.
The Zacks Consensus Estimate for CNDT’s 2024 earnings has been revised 56.6% northward in the past 60 days to $1.66.
Price & Consensus: CNDT
Barrett Business Services: The company offers business management solutions tailored for small and mid-sized enterprises across the United States.
With a growing client base, it is experiencing an expansion in gross billings. The company remains buoyed by successful marketing efforts, the introduction of new products and the implementation of BBSI Benefits. With these factors driving momentum, the outlook for 2024 is optimistic, positioning the company for a robust performance.
The Zacks Consensus Estimate for the company’s 2024 earnings has been revised 2.2% northward in the past 60 days to $7.95.
Price & Consensus: BBSI
Broadridge Financials: It is a global fintech firm known for providing tech-driven solutions and investor communication services to banks, broker-dealers, asset managers and issuers, with a reputation for producing and distributing critical financial documents.
The company’s robust business model, driven by growing recurring fee revenues and strategic acquisitions, positions it well for revenue growth, supported by a diverse product portfolio. Broadridge excels in implementing its growth strategy in governance, capital markets and wealth management, seizing opportunities in the tech solutions space, including digital, AI, cloud and blockchain, through acquisitions.
The Zacks Consensus Estimate for fiscal 2024 earnings has remained unchanged over the past 60 days at $7.72.
Price & Consensus: BR