A prudent investment decision involves buying stocks that have solid prospects and selling those that carry risks. At times, it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions.
Here we discuss about Broadridge Financial Solutions, Inc. (BR - Free Report) , a stock with an expected long-term earnings per share growth rate of 10% and a Growth Score of A.
Last year, the company has outperformed its industry. The stock has returned 14% against the industry’s decline of 2%.
We believe the stock has the potential to exceed expectations moving ahead. The reasons behind our optimism include the company’s strong business model and benefits from strategic acquisitions.
Let’s discuss them in detail.
A Strong Business Model
Broadridge’s prudent business model allows the company to fetch a good percentage of its business from recurring fee revenues, which include contributions from Net New Business and acquisitions related synergies. Notably, revenues for fiscal 2017, 2016 and 2015 came in at $4.143 billion, $2.897 billion and $2.694 billion, representing year-over-year growth of approximately 43%, 7.5% and 5.3%, respectively.
Revenue growth is an important metric for any company as it is a vital part of growth projections and instrumental in strategic decision-making. Also, the metric is essential for justifying the fixed and variable expenses incurred to operate a business. Broadridge’s diversified products and services coupled with strategic acquisitions have boosted the company’s top-line growth. Higher revenues are expected to expand margins and increase profitability in the long run.
Broadridge Financial Solutions, Inc. Revenue (TTM)
Strategic Acquisitions Expand Product Portfolio and Customer Reach
On Mar 27, 2018, Broadridge completed the acquisition of ActivePath. The buyout is expected to help the company enhance consumer experience by transforming and improving its digital platform. In 2017, it acquired Summit Financial Disclosure, LLC., a full service financial document management solutions provider, and Message Automation Limited, a leading specialist provider of post-trade control solutions. The company’s 2016 acquisitions include that of DST Systems’s North American Customer Communications (NACC) business, 4sight Financial Software Limited and Inveshare.
In 2015, Broadridge acquired four companies namely — QED Financial Systems, Direxxis, Fiduciary Services and Competitive Intelligence — and the trade processing business of the Wilmington Trust Retirement and Institutional Services unit of M&T Bank Corporation. In 2014, it had acquired TwoFour Systems LLC and Emerald Connect, LLC. We believe, all these buyouts have helped Broadridge to evolve as one of the leading financial and outsourcing services providers.
We remain encouraged by the company’s acquisition spree, which is helping Broadridge to expand its product portfolio and customer reach.
The aforementioned factors have positively impacted Broadridge’s financial performance. Evidently, the stock has outperformed the Zacks Consensus Estimate in the trailing four quarters, with an average positive surprise of 21.2%. We believe the upbeat performance will continue in the quarters ahead, thus giving investors reasons to remain optimistic on the stock.
Zacks Rank and Key Picks
Broadridgehas a Zacks Rank #3 (Hold). Better-ranked stocks in the broader Business Services sector include CRA International (CRAI - Free Report) , FTI Consulting (FCN - Free Report) and NV5 Global (NVEE - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the trailing four quarters, CRA International, FTI Consulting and NV5 Globalhave delivered a positive earnings surprise of 28%, 6.1% and 5.8%, respectively.
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