The increasing demand for business process outsourcing (BPO), driven by its flexibility and reduced costs, aids the Zacks Outsourcing industry. The upsurge in data encryption and cybersecurity risks necessitates the need to pivot toward outsourcing. Trends like the Internet of Things (IoT), cloud computing, Artificial Intelligence (AI) and Machine Learning (ML) are transforming the sector.

Investors can consider Capgemini SE (CGEMY Quick QuoteCGEMY - Free Report) and Adecco Group AG (AHEXY Quick QuoteAHEXY - Free Report) from the 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, one can 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, administration of benefits, 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.

What's Shaping the Future of the Outsourcing Industry?

Consistent Growth in Business Process & IT Outsourcing: BPO services witness higher demand due to greater flexibility, lower costs and improved service quality. Per our long-term outlook, outsourced IT services will cover a wide array of functions, including programming and technical support, which will boost their demand. This will enable companies to outsource their entire IT departments, lowering costs and allowing them to focus on core operations. The shortage of in-house engineering talent will drive the outsourcing trend.

Urgency of Cybersecurity Measures: The demand for robust data encryption and cybersecurity measures is increasing on the back of heightened public awareness and changing cyber threats, such as ransomware and national-level cyberattacks. To mitigate cybersecurity threats, companies are focusing on employee security awareness training and breach detection systems. Businesses are increasingly turning to outsourced cybersecurity services to lower risks, maintain compliance and support scalability in their operations.

Changing Industry Trends: The outsourcing sector is being transformed by trends such as IoT, cloud computing, AI and ML. These innovations improve efficiency, support innovation and increase competitiveness, transforming the outsourcing landscape for businesses to streamline operations. 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 swifter, effective 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 #227. This rank places it in the bottom 7% of 244 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 us take a look at the industry’s recent stock market performance and current valuation.

Industry Underperforms Sector & S&P 500

Over the past year, the Zacks Outsourcing industry underperformed the broader Zacks Business Services sector and the Zacks S&P 500 composite.

The industry has declined 47.6% over this period compared with the broader sector’s 18.2% dip and against the Zacks S&P 500 composite’s 23.2% rally.

1-Year Price Performance

Industry Trades Cheaper Than Sector & S&P 500

On the basis of forward 12-month price-to-earnings (P/E), commonly used for valuing outsourcing stocks, the industry is currently trading at 18.17X compared with the S&P 500’s 21.63X and the sector’s 17.79X.

In the past five years, the industry has traded as high as 33.22X and as low as 4.94X, with the median being 17.03X, as the charts below show.

Price-to-Forward 12 Months’ P/E Ratio

2 Outsourcing Stocks Poised for Growth

Capgemini: This company provides expert consulting, technology and engineering services, as well as specialized strategies, globally. Capgemini finished 2025 with a strong note, delivering 3.4% year-over-year top-line growth at constant currency. The company witnessed growth across all regions over the past four quarters.

The company reported a solid book-to-bill ratio of 1.08 for 2025 and 1.21 for the fourth quarter of 2025. It serves as concrete evidence for consistent commercial traction, fueled by a higher number of large deals. Despite cost pressure due to higher bench in Continental Europe, CGEMY skillfully managed to end the year with an operating margin of 13.3% and a stable organic free cash flow.

The Defense sector continued to deliver positively with double-digit growth in 2025. Furthermore, CGEMY’s Intelligent Operations, which leverages AI to reshape and run entire client business operations, displayed a growth pipeline of opportunities.

Capgemini has also made significant progress in its ESG goals. On the environment front, it has propelled toward the target of being net-zero across all scopes by 2040, reaching 100% renewable electricity for all operations. It has made notable progress in gender balance with a 13-point hike in women executives since 2019, highlighting an inclination toward a modernized governance structure.

The Zacks Consensus Estimate for the company’s 2026 EPS of $3.18 has risen 11.6% over the past 60 days.

CGEMY carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

Adecco: This company offers human resource services to businesses and organizations across the globe. During the fourth-quarter 2025 earnings call, the company disclosed it managed to gain 245 basis points (bps) in its market share relative to key competitors with sustained positive momentum.

The top line gained 3.9% year over year during the fourth quarter of 2025 and achieved a stable gross margin of 19.2%, banking on a diversification strategy. The company successfully improved productivity by 11% and delivered a strong drop-down ratio of more than 80%. It resulted in an EBITA margin expansion of 60 bps year over year. A 70-bps dip in SG&A expenses as a percentage of revenues added to the margin expansion as well.

The company maintained a high conversion rate of earnings into cash, as evidenced by a 102% cash conversion ratio. AHEXY excelled at managing debt as it experienced a clear dip in leverage ratio to 2.4X, down 0.2X year over year and 0.6X sequentially. In terms of product, AI-powered Career Studio showed significant improvement in helping people find jobs in 32 days than those who do not use this product.

The Zacks Consensus Estimate for the company’s 2026 EPS has been unchanged at $1.55 over the past 60 days.

AHEXY currently has a Zacks Rank of #3 (Hold).