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Broadridge Banks on Solid Business Model & Buyouts for Growth

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Shares of Broadridge Financial Solutions, Inc. (BR - Free Report) have gained a massive 70.8% over the past year, outperforming the 25% rally of the industry it belongs to.

The company’s fourth-quarter fiscal 2018 results missed the Zacks Consensus estimate on both counts. Adjusted earnings of $1.86 per share missed the consensus mark by 2 cents but came ahead of the year-ago figure by 15 cents. Total revenues of $1.32 billion lagged the consensus estimate by $6.6 million and fell short of the year-ago figure by $26 million.

However, Broadridge has an impressive earnings surprise history, having surpassed estimates in three of the trailing four quarters, with an average beat of 23.4%.

Strong Recurring Revenue Base

Broadridge's business model helps it to generate a good percentage from recurring fee revenues, which include contributions from net new business, internal growth and acquisition-related synergies. Notably, revenues for fiscal 2018, 2017 and 2016 came in at $4.3 billion, $4.1 billion and $2.9 billion, respectively, representing year-over-year growth of approximately 5%, 43% and 7.5%. The company’s diversified products and services coupled with strategic acquisitions have boosted top-line growth. Higher revenues are expected to expand margins and increase profitability in the long run.

Broadridge Financial Solutions, Inc. Revenue (TTM)

Increasing Technology Investments

With increasing demand for technology solutions, Broadridge has ramped up investments in digital, AI, cloud and blockchain particularly via acquisitions. These investments are likely to enhance the value of the company’s core product offerings and should prove beneficial in the long run. Globally, consistent demand for technology solutions should help Broadridge gain significantly from its SaaS based offerings. Growing trends like increasing demand for data and analytics, mutualization and digitization should boost sales.

Active on the Acquisition Front

Broadridge has supplemented internal growth with strategic acquisitions. So far this year, the company completed acquisitions of FundAssist Limited, MackayWilliams LLP and ActivePath at aggregate prices of $47 million, $8 million and $25 million, respectively. It made three acquisitions in 2017 and six in 2016. We believe such buyouts are helping Broadridge to expand its product portfolio and customer reach, besides enabling  it to evolve as a leading financial and outsourcing services provider.

Zacks Rank & Other Stocks to Consider

Broadridge carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the broader Business Services sector include Genpact (G - Free Report) , Automatic Data Processing (ADP - Free Report) and Paychex, Inc. (PAYX - Free Report) , each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected EPS (three to five years) growth rate for Genpact, Automatic Data Processing and Paychex is 10%, 11.3% and 8.2%, respectively.

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