BR or G: Which Outsourcing Services Firm is Better Placed?

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The outsourcing industry is growing steadily on increasing demand for expertise to improve efficiency and reduce costs.

Recently, higher corporate spending post the tax reform resulted in better business for outsourcing companies. With corporates consistently allocating tax savings toward investments in digital and artificial intelligence and cloud and blockchain, the outsourcing companies are expected to thrive.

In spite of multiple tailwinds, outsourcing services have certain disadvantages. The industry is labor intensive and heavily dependent on foreign talent. Rising talent costs due to competition coupled with Trump's stringent policies on immigration are likely to curb the industry's growth.

Considering this backdrop, it is not a bad idea to undertake a comparative analysis of two Outsourcing Services stock - Broadridge Financial Solutions Inc.BR and Genpact LimitedG . While Broadridge has a market capitalization of $11.2 billion, Genpact's market cap is $5.2 billion.

As the stocks carry a Zacks Rank #3 (Hold), we are using other parameters to provide investors a better insight.

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

Price Performance

Broadridge has performed impressively on the bourse year to date compared with Genpact and the industry . While Broadridge's shares have gained 5.6%, the same for Genpact declined 14.9%. The industry inched down 0.5% in the same time frame.

Earnings Expectations

Earnings growth along with stock price gains is often an indication of a company's strong prospects.

Broadridge's current year earnings are projected to grow 11.7% compared with 8.6% for Genpact. For the next year, Broadridge's expected earnings growth rate is 8.7% compared with Genpact's 12.1%. Thus, while Broadridge has an edge in terms of current year expected earnings growth, Genpact has an edge when we look at the next year's picture.

The long-term (three to five years) expected earnings per share growth rate for Broadridge and Genpact is 10% each.

Earnings Estimate Revisions

The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

The Zacks Consensus Estimate for current quarter earnings declined 2% for Genpact and 10% for Broadridge. For fiscal 2019, the consensus estimate inched up 0.6% for both Genpact and Broadridge.

Earnings Surprise History

The earnings surprise history of a stock helps investors have an idea of the stock's performance in the previous quarters.

Broadridge and Genpact have an impressive trailing four quarter earnings surprise history. However, Broadridge delivered higher average positive surprise of 18.7% compared with Genpact's 4.3%.

Net Margin

Net profit margin helps investors evaluate a company's business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.

With a TTM net margin of 12.2%, Broadridge has a lead over Genpact's that has 10.3% TTM net margin. However, the companies lag behind the industry that has a TTM net margin of 13.4%.


Comparing the companies with each other and the industry on the basis of price to forward 12 months' earnings, we see that Broadridge's 19.65X is ahead of Genpact's 13.81X and the industry's 18.52X.

So, Broadridge looks expensive compared with Genpact and the industry.

Bottom Line

Our comparative analysis shows that Broadridge scores over Genpact in terms of share price performance, expected current year earnings growth, earnings surprise history and net margin. However, a faster share price rally led to a higher valuation for the company. Genpact is superior in terms of next year expected earnings growth.

Stocks to Consider

A few better-ranked stocks in the broader Zacks Business Services sector are Interpublic IPG and Automatic Data Processing ADP , each carrying a Zacks Rank #2 (Buy). Long-term expected EPS (three to five years) growth rate for Interpublic and Automatic Data Processing are 7.5% and 12.5%, respectively.

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Interpublic Group of Companies, Inc. (The) (IPG): Free Stock Analysis Report

Genpact Limited (G): Free Stock Analysis Report

Automatic Data Processing, Inc. (ADP): Free Stock Analysis Report

Broadridge Financial Solutions, Inc. (BR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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