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 Genpact G , a stock that has rallied 19.6% over the past year. The company has expected long-term earnings per share growth rate of 10%.
The company's strong prospects in the artificial intelligence (AI) space and benefits from strategic acquisitions are impressive.
Let's delve deeper in to Genpact's key growth drivers.
Acquisition a Key Growth Strategy
Genpact is very active on the acquisition front. We believe that the buyouts of TandemSeven, BrightClaim and Rage Frameworks in 2017 are helping the company to expand product portfolio and gain new domain expertise.
In fact, the addition of TandemSeven's core design thinking process to Genpact's AI platform is likely to help the latter become more customer-oriented company. Acquisition of BrightClaim and their associated company, National Vendor, should also strengthen Genpact's insurance claims management expertise.
Meanwhile, Rage Frameworks buyout expanded Genpact's capability to provide AI offerings across industries, such as consumer packaged goods, industrial engineering, life-sciences and high-tech.
Genpact's other notable acquisitions include LeaseDimensions, Endeavour Software, Strategic Sourcing Excellence (SSE), PNMSoft Limited, Hitachi Management and Pharmalink Consulting. These buyouts have helped the company in expanding its presence in mobile technology, dynamic workflow solution, life sciences and banking operations. These, in turn, have driven customer base and top-line growth.
Genpact Limited Revenue (TTM)
Genpact Limited Revenue (TTM) | Genpact Limited Quote
Artificial Intelligence: Big Opportunity
Artificial Intelligence presents significant growth opportunity for Genpact. Of late, the company launched artificial intelligence (AI) platform - Genpact Cora - an automation to AI-based platform that combines its proprietary automation, analytics, and AI technologies into a single common platform. This latest platform has a modular, interconnected network of technologies that enables clients to better tackle specific operational business challenges.
Genpact Cora is also helping the company to provide related offerings to industries like consumer-packaged goods, industrial engineering, life sciences and high tech. Acquisitions of Rage Framework and design thinking based companies, like Tandem Seven have also expanded the company's AI product portfolio.
Per an IDC report, worldwide spending on cognitive systems and AI is estimated to touch $52.2 billion in 2021 at a CAGR of 46.2%. We believe that Genpact is well positioned to take advantage of the projected improvement in the AI space.
Strong Clientele a Boon
Genpact has a strong clientele across the world. The company serves almost one fifth of the Global Fortune 500, including Boeing, Citigroup, GlaxoSmithKline, Wells Fargo, Ironshore, Mondelez, PayPal and Abbott. We note that the Global Client base has improved rapidly over the last five years (2012-2017). Revenues from this group have increased at a healthy CAGR of 12% in this time frame to reach $2.47 billion in 2017.
Moreover, Global Clients (as a percentage of total revenues) increased from approximately 75% in 2012 to approximately 90% in 2017. We believe that Genpact's expertise in providing BPO services might continue to expand customer base in the long run.
Despite riding on significant growth prospects, Genpact is not free from overhangs. High indebtedness resulting from frequent acquisitions and significant client concentration in terms of geographic location (North America) are threats. However, we believe that acquisitions, strong clientele and growth in AI space bode well for the company in long term.
Genpacthas a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Stocks to Consider
Some better-ranked stocks in the broader Business Services sector include Automatic Data Processing ADP , Mastercard Inc. MA and Broadridge Financial Solutions Inc. BR . While Mastercard sports a Zacks Rank #1, ADP and Broadridge carry a Zacks Rank #2 (Buy).
The long-term expected earnings per share growth rates for ADP, Mastercard and Broadridge are 11%, 19.03% and 10%, respectively.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Broadridge Financial Solutions, Inc. (BR): Free Stock Analysis Report Automatic Data Processing, Inc. (ADP): Free Stock Analysis Report Genpact Limited (G): Free Stock Analysis Report Mastercard Incorporated (MA): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research