Broadridge Financial Solutions, Inc. (BR - Free Report) is currently benefitting from a business model that supports recurring revenue generation.
Shares of the company have inched up 1.4% on a year-to-date basis, against the industry’s decline of 7.1%.
With expected long-term earnings per share (EPS) growth rate of 10% and a market cap of $10.7 billion, it is a stock that investors should retain in their portfolios now.
Let’s take a look at the factors that bode well for the company.
Acquisitions: A Key Growth Strategy
Broadridge aims to achieve internal growth on the back of strategic acquisitions. So far in 2018, the company acquired MackayWilliams LLP, FundAssist Limited and ActivePath. These acquisitions have enabled the company to emerge as one of the leading financial and outsourcing services providers.
Some notable buyouts of 2017 include Summit Financial Disclosure, LLC and Message Automation Limited. In 2016, the company acquired 4sight Financial Software Limited and Inveshare Inc as well as completed the buyout of DST Systems Inc.’s North American Customer Communications (NACC) business. These acquisitions are aiding the company to expand product portfolio and widen customer reach.
Strong Business Model
Broadridge is capable of generating significant recurring revenues, courtesy of a strong business model. Recurring revenues account for a major portion of the company’s business and includes contributions from net new business, internal growth and acquisition-related synergies. Strong revenues will continue to expand margins and boost the company’s bottom-line growth.
Consistency in Rewarding Shareholders
Broadridge returns excess cash to shareholders through a growing dividend and share buybacks. In fiscal 2018, Broadridge returned $391 million to shareholders through a combination of dividend payment and share repurchases. On August 2018, the company's board of directors approved a dividend hike of 33%, marking the eleventh consecutive year of annual dividend increase since the company became public in 2007.
In fiscal 2017, Broadridge repurchased $342.8 million worth of its treasury stock and paid dividend worth 152.2 million. These shareholder-friendly initiatives boost investors’ optimism but and make a positive impact on earnings.
In spite of significant growth prospects, Broadridge is not free from headwinds. Frequent acquisitions add to costs and integration risks as well as are expected to have negative impact on organic growth going forward. Nevertheless, we believe that diversife portfolio along with strategic acquisitions bode well for the company in the long term.
Zacks Rank & Stocks to Consider
Currently, Broadridge carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A few better-ranked stocks in the Zacks Business Services sector are Automatic Data Processing, Inc. (ADP - Free Report) , Paychex, Inc. (PAYX - Free Report) and Navigant Consulting, Inc. (NCI - Free Report) , each carrying a Zacks Rank #2 (Buy).
The long-term expected EPS (three to five years) growth rate for Automatic Data Processing, Paychex and Navigant Consulting is 12.5%, 8.8%, and 13.5%, respectively.
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