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Broadridge (BR) Banking on Recurring Revenues, Debt Woe Stays

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Broadridge Financial Solutions, Inc. (BR - Free Report) is currently benefiting from strategic acquisitions and a strong business model.

The company recently reported third-quarter fiscal 2021’s adjusted earnings of $1.76 per share that surpassed the Zacks Consensus Estimate by 5.4% and increased 5% on a year-over-year basis. Total revenues of $1.39 billion also beat the consensus mark by 8.3% and rose 11% year over year.

The stock has gained 36.6% in the past year, significantly underperforming the 44.7% rally of the industry it belongs to.

Strong Business Model

Broadridge’s robust business model ensures significant recurring-fee revenues, including contributions from net new business, internal growth and acquisition-related synergies. In the third quarter of fiscal 2021, recurring-fee revenues of $900 million increased 7.8% year over year and contributed 65% of total revenues.

Broadridge has been supplementing internal growth with strategic acquisitions. The recent acquisition of Itiviti is expected to significantly increase Broadridge’s revenues outside of North America and expand the company’s international footprint. The February 2020 acquisition of FundsLibrary has amplified its pan-European regulatory communications and digital data platform, supporting the lifecycle of fund data, documents and regulatory reporting for the investment industry.

Broadridge has a track record of consistent dividend payment. During fiscal 2020, the company paid cash dividends of $241 million. It paid out $211.2 million, $165.8 million and $152.2 million of dividends during fiscal years 2019, 2018 and 2017, respectively.

Debt Burden Stays

Broadridge’s cash and cash equivalent of $356 million at the end of the fiscal third quarter was well below its debt level of $1.7 billion, underscoring that the company doesn’t have enough cash to meet its debt burden. Broadridge, however, has no short-term debt to clear off.

Zacks Rank and Stocks to Consider

Broadridge currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the broader Zacks Business Services sector are Equifax (EFX - Free Report) , Charles River (CRAI - Free Report) and TransUnion (TRU - Free Report) , each carrying a Zacks Rank #2 (Buy).

The long-term expected earnings per share (three to five years) growth rate for Equifax, Charles River and TransUnion is 14%, 15.5% and 20.9%, respectively.

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