Broadridge Financial Solutions, Inc. BR is benefiting from strong organic growth and lower tax rates that continue to support earnings growth. The company’s capital markets and investment management businesses are likely to stay in good shape as long as uncertainty-induced market volatility is prevalent.
In a year’s time, shares of the company have gained 4.8%, significantly outperforming the 1.8% rally of the industry it belongs to.
With an expected long-term earnings per share growth rate of 10% and a market cap of $11.7 billion, Broadridge’s seems to be a stock that investors should retain in their portfolio for now.
Factors Driving Broadridge’s Performance
The company’s recurring fee revenues that constitutes significant chunk of the top line have been growing significantly in the past few years. Broadridge currently has a large and growing recurring revenue backlog, which provides good visibility on organic revenues in the near to mid-term.
Broadridge Financial Solutions, Inc. Revenue (TTM)
Broadridge Financial Solutions, Inc. Revenue (TTM) | Broadridge Financial Solutions, Inc. Quote
The company’s capital market business should grow as markets globalize consistently and regulatory changes continue to take place. Its investment management business is benefiting from increase in scrutiny on money movements. Also, growing demand for transparency in corporate governance should drive the governance business.
Increasing adoption of outsourcing in EMEA and APAC should boost Broadridge’s global technology and operations segment. A strong economy should keep demand for the company’s customer communications products in good shape.
With increasing demand for technology solutions, Broadridge has ramped up investments in digital, AI, cloud and blockchain particularly via acquisitions. These investments should be beneficial in the long run.
Despite riding on significant growth prospects, Broadridge is not free from overhangs. Increased spending will, to some extent, offset the positive impact of higher revenues and weigh on bottom line in the near term. However, we believe that while tax benefit will continue to support earnings growth, growing demand for data and analytics, mutualization and digitization should drive sales.
Zacks Rank and Stocks to Consider
Broadridge currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader Business Services sector are General Finance Corporation GFN, Omnicom Group Inc OMC and Paychex, Inc PAYX, 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 EPS (three to five years) growth rate for General Finance, Omnicom and Paychex is 11%, 6.9% and 8.8%, respectively.
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