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Broadridge Financial Solutions, Inc. BR is currently benefiting from a strong business model backed by healthy recurring revenues. The company’s shares have gained 22.1% over the past year, outperforming the 6.6% rally of the industry it belongs to and 17% growth of the Zacks S&P 500 composite.
What’s Supporting the Rally?
Broadridge’s robust business model ensures significant recurring fee revenues, including contributions from net new business, internal growth and acquisition-related synergies. In the first quarter of fiscal 2021, recurring fee revenues of $671 million increased 8% year over year.
The February 2020 acquisition of FundsLibrary has strengthened the company’s pan-European regulatory communications and digital data platform, supporting the lifecycle of fund data, documents as well as regulatory reporting for the investment industry. The 2019 buyout of ClearStructure Financial Technology has expanded the company’s asset-management technology suite across private debt markets, and that of Fi360 has strengthened its Investor Communication Solutions segment.
Broadridge has a track record of consistent dividend payment. During fiscal 2019, the company paid out cash dividends of $63.9 million. It paid out $211.2 million, $165.8 million and $152.2 million of dividends during fiscal 2019, 2018 and 2017, respectively.
Broadridge has a debt-laden balance sheet. Total debt at the end of first-quarter fiscal 2021 was $1.78 billion, flat sequentially. The total-debt-to-total-capital ratio of 0.56 was higher than the industry’s 0.39. A high debt-to-capitalization ratio indicates higher risk of insolvency in challenging times.
Further, the company’s cash and cash equivalent balance of $357 million at the end of the first-quarter was well below the debt level, underscoring that the company doesn’t have enough cash to meet this debt burden.
Zacks Rank and Key Picks
Broadridge currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Business Services sector are Republic Services RSG, Gartner, Inc. IT and NV5 Global NVEE, 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 Republic Services, Gartner and NV5 Global is 9.4%, 13.5% and 16.8%, respectively.
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