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Broadridge (BR) Riding on Recurring Revenues Despite Debt Woes

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Broadridge Financial Solutions, Inc. BR is currently benefiting from strategic acquisitions and a strong business model.

The company recently reported second-quarter fiscal 2021 adjusted earnings of 73 cents per share that matched the Zacks Consensus Estimate and improved 38% year over year. Total revenues of $1.06 billion beat the consensus mark by 2.8% and were up 9% year over year.

The stock has gained 35.3% in the past year, significantly outperforming the 11.1% rally of the industry it belongs to.

Benefiting From a Strong Business Model

Broadridge’s robust business model ensures significant recurring-fee revenues, including contributions from net new business, internal growth and acquisition-related synergies. In the second quarter of fiscal 2021, recurring-fee revenues of $696.2 million increased 7% year over year and contributed 67% to total revenues.

Broadridge Financial Solutions, Inc. Revenue (TTM)

Broadridge Financial Solutions, Inc. Revenue (TTM)
Broadridge Financial Solutions, Inc. Revenue (TTM)

Broadridge Financial Solutions, Inc. revenue-ttm | Broadridge Financial Solutions, Inc. Quote

Broadridge has been supplementing internal growth with strategic acquisitions. The February 2020 acquisition of FundsLibrary has amplified its pan-European regulatory communications and digital data platform, supporting the lifecycle of fund data, documents and regulatory reporting for the investment industry. The 2019 buyout of ClearStructure Financial Technology has expanded its asset-management technology suite across private debt markets, and that of Fi360 is benefiting its Investor Communication Solutions segment.

Broadridge has a track record of consistent dividend payment. During fiscal 2020, the company paid cash dividends of $241 million. It paid out $211.2 million, $165.8 million and $152.2 million of dividends during fiscal years 2019, 2018 and 2017, respectively.

Debt Woe Stays

Broadridge’s total-debt-to-total-capital ratio of 0.56 was higher than the industry’s 0.39 at the end of the fiscal second quarter. A high debt-to-capitalization ratio indicates higher risk of insolvency in challenging times. Further, the company’s cash and cash equivalent of $366 million at the end of the quarter was well below the debt level of $1.8 billion, underscoring that the company doesn’t have enough cash to meet this debt burden. Broadridge, however, has no short-term debt to clear off.

Zacks Rank and Stocks to Consider

Broadridge currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Zacks Business Services sector are Omnicom OMC, Gartner IT and TeleTech TTEC, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected earnings per share (three to five years) growth rate for Omnicom, Gartner and TeleTech is pegged at 4.7, 13.5% and 19.4%, respectively.

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