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Zacks Industry Outlook Highlights Automatic Data Processing, Paychex and Genpact
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For Immediate Release
Chicago, IL – October 10, 2022 – Today, Zacks Equity Research discusses Automatic Data Processing, Inc. (ADP - Free Report) , Paychex, Inc. (PAYX - Free Report) and Genpact Ltd. (G - Free Report) .
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.
Automatic Data Processing, Inc., Paychex, Inc. and Genpact Ltd. are some stocks that 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 engaged in providing human capital management solutions, business management solutions and information technology solutions for human resource, payroll, benefits, and retirement and insurance services to small- and 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 the Outsourcing Industry?
A Healthy Demand Environment: Increasing demand for improving efficiency and reducing costs has benefited the industry over the past several years. 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.
Rising Dependency on 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. The wider application of artificial intelligence (AI) is expected to be the biggest change induced by the pandemic. The 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 in any kind of operating environment.
Security Issues and Remedies: 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 risks. Adequate training of employees on 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 #40. This rank places it in the top 16% 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 Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
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 4.7%.
Before we present a few stocks that investors can buy given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Outperforms Sector and S&P 500
The Zacks Outsourcing industry has outperformed the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.
The industry has gained 3.3% over this period against a 43% decline of the broader sector and 14.9% decline of the Zacks S&P 500 composite.
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 23.19X compared with the S&P 500’s 16.2X and the sector’s 21.31X.
Over the past five years, the industry has traded as high as 28.89X, as low as 17.89X and at the median of 23.58X.
Automatic Data Processing: This New Jersey-based company provides cloud-based human capital management solutions worldwide. ADP’s three-tier business strategy helps it maintain and grow its strong position as a human capital management (HCM) technology and services provider.
The company is focused on delivering a complete suite of cloud-based HCM and HR Outsourcing solutions. Strategic acquisitions like Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company have strengthened ADP’s customer base and are helping it expand operations in international markets. It has a strong business model, high recurring revenues, good margins, robust client retention and low capital expenditure. Further, it continues to innovate, improve operations and invest in its ongoing transformation efforts.
The Zacks Consensus Estimate for ADP’s 2022 EPS has moved up 3.2% in the past 90 days. ADP’s shares have rallied 13.2% over the past year.
Paychex: This New York-based company provides integrated human capital management solutions.
Paychex continues to benefit from growth in its payroll client bases and product penetration across HCM offerings, resulting from strong sales performance and high levels of retention, high demand for HR Solutions, improved revenues per client resulting from higher employment levels within the company’s client base and enhanced price realization, and expansion of HCM ancillary services. An increase in the number of average worksite employees, the impact of an increase in average wages per worksite employee, higher revenues on state unemployment insurance and a rise in PEO health insurance revenues act as other tailwinds.
Additionally, cost-saving initiatives result in sequential improvement of margins. Acquisitions have expanded Paychex's customer base besides generating cost and revenue synergies. Consistency in rewarding shareholders through dividend payments and share repurchases boosts investor confidence and positively impacts earnings per share.
The Zacks Consensus Estimate for Paychex’s 2022 EPS has improved 1.7% in the past 90 days. PAYX stock has declined 5.8% over the past year.
Genpact Ltd.: This Bermuda-based company provides business process outsourcing and IT services in North and Latin America, India, the rest of Asia and Europe. Genpact enjoys a competitive position in the BPO services market based on its domain expertise in business analytics, digital and consulting. Acquisitions have been helping it expand its product portfolio and gain new domain expertise. AI offers ample growth opportunities amid the COVID-induced dependency on technology.
The Zacks Consensus Estimate for Genpact’s 2022 EPS has improved 0.4% in the past 90 days. G stock has declined 5.3% over the past year.
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.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Automatic Data Processing, Paychex and Genpact
For Immediate Release
Chicago, IL – October 10, 2022 – Today, Zacks Equity Research discusses Automatic Data Processing, Inc. (ADP - Free Report) , Paychex, Inc. (PAYX - Free Report) and Genpact Ltd. (G - Free Report) .
Industry: Outsourcing
Link: https://www.zacks.com/commentary/1989079/3-stocks-to-buy-from-the-promising-outsourcing-industry
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.
Automatic Data Processing, Inc., Paychex, Inc. and Genpact Ltd. are some stocks that 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 engaged in providing human capital management solutions, business management solutions and information technology solutions for human resource, payroll, benefits, and retirement and insurance services to small- and 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 the Outsourcing Industry?
A Healthy Demand Environment: Increasing demand for improving efficiency and reducing costs has benefited the industry over the past several years. 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.
Rising Dependency on 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. The wider application of artificial intelligence (AI) is expected to be the biggest change induced by the pandemic. The 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 in any kind of operating environment.
Security Issues and Remedies: 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 risks. Adequate training of employees on 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 #40. This rank places it in the top 16% 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 Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
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 4.7%.
Before we present a few stocks that investors can buy given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Outperforms Sector and S&P 500
The Zacks Outsourcing industry has outperformed the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.
The industry has gained 3.3% over this period against a 43% decline of the broader sector and 14.9% decline of the Zacks S&P 500 composite.
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 23.19X compared with the S&P 500’s 16.2X and the sector’s 21.31X.
Over the past five years, the industry has traded as high as 28.89X, as low as 17.89X and at the median of 23.58X.
3 Outsourcing Stocks to Keep a Close Eye On
We are presenting three Zacks Rank #2 (Buy) stocks that 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.
Automatic Data Processing: This New Jersey-based company provides cloud-based human capital management solutions worldwide. ADP’s three-tier business strategy helps it maintain and grow its strong position as a human capital management (HCM) technology and services provider.
The company is focused on delivering a complete suite of cloud-based HCM and HR Outsourcing solutions. Strategic acquisitions like Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company have strengthened ADP’s customer base and are helping it expand operations in international markets. It has a strong business model, high recurring revenues, good margins, robust client retention and low capital expenditure. Further, it continues to innovate, improve operations and invest in its ongoing transformation efforts.
The Zacks Consensus Estimate for ADP’s 2022 EPS has moved up 3.2% in the past 90 days. ADP’s shares have rallied 13.2% over the past year.
Paychex: This New York-based company provides integrated human capital management solutions.
Paychex continues to benefit from growth in its payroll client bases and product penetration across HCM offerings, resulting from strong sales performance and high levels of retention, high demand for HR Solutions, improved revenues per client resulting from higher employment levels within the company’s client base and enhanced price realization, and expansion of HCM ancillary services. An increase in the number of average worksite employees, the impact of an increase in average wages per worksite employee, higher revenues on state unemployment insurance and a rise in PEO health insurance revenues act as other tailwinds.
Additionally, cost-saving initiatives result in sequential improvement of margins. Acquisitions have expanded Paychex's customer base besides generating cost and revenue synergies. Consistency in rewarding shareholders through dividend payments and share repurchases boosts investor confidence and positively impacts earnings per share.
The Zacks Consensus Estimate for Paychex’s 2022 EPS has improved 1.7% in the past 90 days. PAYX stock has declined 5.8% over the past year.
Genpact Ltd.: This Bermuda-based company provides business process outsourcing and IT services in North and Latin America, India, the rest of Asia and Europe. Genpact enjoys a competitive position in the BPO services market based on its domain expertise in business analytics, digital and consulting. Acquisitions have been helping it expand its product portfolio and gain new domain expertise. AI offers ample growth opportunities amid the COVID-induced dependency on technology.
The Zacks Consensus Estimate for Genpact’s 2022 EPS has improved 0.4% in the past 90 days. G stock has declined 5.3% over the past year.
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.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.