Strong Business Model Aids Broadridge (BR) Amid Integration Risks
Broadridge Financial Solutions,Inc. BR is benefiting from its strong business model which enables the company to earn recurring revenues. The company’s internal growth is complemented by acquisitions. Its acquisition strategy exposes it to integration risks and added costs.
Broadridge Financial Solutions reported mixed third-quarter fiscal 2023 results with earnings beating the Zacks Consensus Estimate but revenues missing the same. Adjusted earnings of $2.05 per share beat the consensus mark by 2% and increased 6.2% year over year.
Total revenues of $1.65 billion missed the consensus mark by a slight margin but were up 7.3% year over year. Recurring revenues of $1.08 billion increased 8% from the year-ago quarter’s level. The company generated closed sales of $62 million in the quarter, up 8% year over year.
Broadbridge has outperformed its outsourcing industry gaining 12.1% compared with its industry’s 2.2% growth.
Broadridge Financial Solutions, Inc. Price
Broadridge Financial Solutions, Inc. price | Broadridge Financial Solutions, Inc. Quote
Current Situation of BR
Broadbridge is generating recurring revenues by means of recurring fee revenues. Contributions from net new business, internal growth and acquisition-related synergies are boding well for the company. Revenues for fiscal 2022, 2021 and 2020 came in at $5.71 billion, $4.99 billion and $4.53 billion, respectively, representing year-over-year growth of approximately 14%, 10% and 4%, respectively.
Strategic acquisitions are one of the growth drivers of the company. The 2021 acquisition of Itiviti expands Broadridge’s back-office capabilities into the front office and deepens its multi-asset class solutions while the AdvisorStream acquisition is helping Broadridge boost its revenues and growth by providing personalized and consistent client communications. The company had no material acquisitions in 2022.
The company’s efforts to reward its shareholders are noteworthy. In 2022, 2021 and 2020, the company paid $290.7 million, $261.7 million and $241 million in dividends. These moves instill shareholders’ confidence in the stock. The company also boasts strong liquidity. Broadridge's current ratio at the end of third-quarter fiscal 2023 was pegged at 1.35, which is higher than the current ratio of 1.27 reported at the end of the prior-year quarter. This indicates the company is less likely to face trouble meeting its short-term debt obligations.
Some Concerning Points
Broadridge has been active on the acquisition front which has helped it improve its revenue situation and also exposed it to integration-related risks and higher cost burdens. The same is having a toll on the bottom line of the company.
Zacks Rank and Stocks to Consider
BR currently carries a Zacks Rank #3 (Hold).
Investors interested in the broader Zacks Business Services can consider the following stocks:
Green Dot GDOT: For second-quarter 2023, the Zacks Consensus Estimate of Green Dot’s revenues suggests a decline of 4.8% year over year to $338.2 million and the same for earnings indicates a 2.7% increase to 76 cents per share. The company has an impressive earning surprise history, beating the consensus mark in all four trailing quarters, the average surprise being 37.3%.
GDOT has a Value score of A and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Maximus MMS: For second-quarter 2023, the Zacks Consensus Estimate of Maximus’ revenues suggests an increase of 6.9% year over year to $1.2 billion and the same for earnings indicates a 46.2% rise to $1.14 per share. The company has an impressive earning surprise history, beating the consensus mark in three instances and missing on one instance, the average surprise being 9.6%.
MMS has a VGM score of B along with a Zacks Rank of 1.
Rollins ROL: For second-quarter 2023, the Zacks Consensus Estimate of Rollins’ revenues suggests growth of 12.6% year over year to $803.6 million and the same for earnings indicates a 15% decrease to 17 cents per share. The company has an impressive earning surprise history, beating the consensus mark in three of the four trailing quarters and missing on one instance, the average surprise being 5.53%.
ROL currently carries a Zacks Rank of 2 and a Growth score of A.
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