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Genpact (G) Up 6.4% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Genpact Limited (G - Free Report) . Shares have added about 6.4% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is G due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Genpact Limited delivered fourth-quarter 2017 non-GAAP earnings of 43 cents per share, which remained flat on a year-over-year basis. However, the figure came ahead of the Zacks Consensus Estimate by a couple of cents.

Revenues of $734.4 million increased 7.7% (up 7% on a constant currency basis) from the year-ago quarter. Revenues also surpassed the Zacks Consensus Estimate of $722 million.

The company’s artificial intelligence (AI) based platform called Genpact Cora and its recent acquisitions are proving to be beneficial for the top line.

Quarter Details

Total BPO revenues (84% of total revenues) increased 11% year over year to $614 million. Total IT services revenues (16% of total revenues) were down 6% year over year to $121 million.

Global Client (91% of total revenue) revenues increased 12% (11% at constant currency) to $669 million driven by the strong performance of transformation services (comprising of analytics, digital and consulting segments), which witnessed year-over-year growth of 25% and represented almost 20% of Global Client revenues.

Global Client BPO segment revenues of $575 million recorded 15% (15% at constant currency) growth on the back of robust performance of industry verticals like insurance, banking, manufacturing, CPG, high tech, life sciences, finance and accounting.

Global Client IT revenues were down 8% year over year to $94 million, impacted by the latest divestiture of the European legacy IT business. The industry has been facing challenging business conditions over the past several quarters.

Revenues from General Electric represented around 9% of total revenues and fell 20% during the quarter to $65 million, primarily due to the impact from the GE capital divestitures.  GE BPO revenues decreased 30% year over year to $39 million. GE IT revenues of $26 million increased 2% from the year-ago quarter.

Adjusted income from operations during the quarter came in at $115 million. Operating margins came in at 15.7%, down 100 basis points (bps) year over year. Selling, general & administrative (SG&A) expenses totaled $189 million, up 10.5% year over year. As a percentage of revenues SG&A came in at 6.8% as compared with 7.1% reported in the year-ago quarter.

Balance Sheet & Dividend

Genpact ended the quarter with cash and cash equivalents of $504 million. The company generated $359.1 million in cash from operations for the year ended Dec 31, 2017. The company repurchased around 7.7 million shares in 2017 for $216 million. It also increased annual dividend to 30 cents per share (up 25%).

Guidance

For full-year 2018, revenues are anticipated in the range of $2.93-$3.00 billion. This expected figure will represent growth of 7-9.5% on a constant currency basis as well as on reported basis.

Global Client revenues for 2018 are expected to grow approximately 9-11% on a constant currency basis as well as on a reported basis. GE is expected to decline 8-10%, primarily impacted by decline in GE Capital business in 2017.

Non-GAAP operating income margin is expected to be 15.8%. Earnings are anticipated to come in the range of $1.70-$1.74 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There have been two revisions higher for the current quarter compared to two lower.

Genpact Limited Price and Consensus

 

Genpact Limited Price and Consensus | Genpact Limited Quote

VGM Scores

At this time, G has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. The stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.

Outlook

G has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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