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Genpact (G) Up 11.8% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Genpact (G). Shares have added about 11.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Genpact due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Genpact Surpasses Q3 Earnings & Revenue Estimates

Genpact reported better-than-expected third-quarter 2020 results.

Quarterly adjusted earnings per share of 56 cents outpaced the consensus mark by 12% and were flat year over year. The positive impact of 7 cents from higher operating income was offset by a negative impact of 4 cents from foreign-exchange re-measurement, 2 cents from higher tax and a penny from net interest expenses.

Revenues amounted to $936 million, which beat the consensus estimate by 3.4% and improved 5% year over year on a reported as well as constant-currency basis. The top line was aided by strength in Global Clients business.

Quarter Details

Global Clients (88% of total revenues) revenues climbed 7% year over year on a reported as well as constant-currency basis to $824 million. This growth was driven by strong growth in Transformation Services due to healthy demand for shorter cycle Transformation Services solutions in areas of financial planning and analysis, and supply chain. General Electric revenues of $111 million declined 8% year over year and contributed 12% to total revenues. The decline was mainly due to lesser IT spending.

Adjusted income from operations totaled $160 million, up 12% year over year. Adjusted operating income margin of 17.1% improved 110 basis points (bps) year over year.

Genpact exited the quarter with cash and cash equivalents of $803.4 million compared with $867.4 million recorded at the end of the previous quarter. Long-term debt (less current portion) totaled $1.3 billion, flat with the prior quarter.

The company generated $252 million of cash from operating activities and capex was $14.8 million. Genpact returned $29 million to shareholders through share repurchases and $19 million through dividends in the quarter.

Raised 2020 Guidance

Genpact raised its 2020 guidance. The company now expects revenues to be between $3.68 and $3.695 billion, compared with the prior guidance of $3.63 and $3.67 billion. Adjusted EPS is now anticipated in the range of $2.08 to 2.11 compared with $2.03 to $2.07 anticipated earlier. The company currently expects Global Clients revenue growth to be 6-6.5% compared with 5-6% projected earlier. Year-over-year and adjusted operating income margin is anticipated to be around 15.7% compared with the prior anticipation of 15.5%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Genpact has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Genpact has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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