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Here's Why You Should Retain Genpact (G) in Your Portfolio

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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.

We believe Genpact Limited (G - Free Report) , with a market cap of $7.2 billion and long-term (three-five years) expected earnings per share growth rate of 14%, is a stock investors should retain in their portfolio. Shares of the company have gained 4.7% over past three months.

Factors Supporting the Stock

Genpact is benefiting from a strong clientele worldwide. The company serves almost one fourth of the Global Fortune 500, including big names such as Citigroup (C - Free Report) , Canon , Novartis (NVS - Free Report) , Kraft Heinz and McKesson. Notably, revenues from Global Clients increased 14.5% year over year to $802 million in the first quarter of 2020.

Genpact Limited Revenue (TTM)

Acquisitions, over time, have been an effective mode of expanding product portfolio and gaining new domain expertise for Genpact.  The November 2019 acquisition of Rightpoint Consulting builds on the capabilities gained from TandemSeven and Endeavour Software Technologies’ acquisitions, and places Genpact in a stronger position to help clients build new products and services, develop digital workspaces, and drive partner engagement.

To mitigate the impacts of the coronavirus outbreak on its business, Genpact has shifted to a work-from-home system and is focusing on improving operational delivery performance and productivity in a virtual work environment.

Some Risks

Genpact has a debt-laden balance sheet. Total debt at the end of first-quarter 2020 was $1.90 billion compared with $1.80 billion at the end of the prior quarter. The debt-to-capital ratio of 0.55 is higher than the industry’s 0.39 and the previous quarter’s 0.52. An increase in debt-to-capitalization ratio indicates higher risk of insolvency in challenging times.

Further, the company’s cash and cash equivalent of $402 million at the end of the first quarter was well below this debt level, underscoring that it doesn’t have enough cash to meet this debt burden. The cash level, however, can meet the short-term debt of $260 million.

Zacks Ranks

While Genpact, Citigroup and Novartiscarry a Zacks Rank #3 (Hold), Canon has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Citigroup Inc. (C) - $25 value - yours FREE >>

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Genpact Limited (G) - $25 value - yours FREE >>

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