Broadridge Financial Solutions, Inc. BR remains poised for growth, backed by acquisitions and investments in product, technology and talent.
The company has an impressive Growth Score of A. This style score condenses all the essential metrics from the company’s financial statements to get a true sense of the quality and sustainability of its growth.
Broadridge’s long-term earnings growth is pegged at 10%, higher than the industry average of 9.4%. Earnings for fiscal 2020 and 2021 are expected to grow 10.3% and 9.9%, respectively.
Factors Aiding the Stock
Shares of Broadridge have gained 34.9% year to date, outperforming the 26.6% rally of the industry it belongs to. We expect this momentum to continue going forward as the company is executing well on a number of strategic priorities.
Firstly, Broadridge remains focused on improving its financial performance. In 2019, it delivered 6% recurring revenue growth, 110 basis points of margin expansion and 11% adjusted EPS growth, all in line or above its guidance. For 2020, Broadridge expects 8-10% recurring revenue growth, around 100 basis points of margin expansion and 8% to 12% adjusted EPS growth.
Broadridge Financial Solutions, Inc. EPS Diluted (TTM)
Broadridge Financial Solutions, Inc. eps-diluted-ttm | Broadridge Financial Solutions, Inc. Quote
Secondly, the company is executing well on its growth strategy in governance, capital markets and wealth management. On the governance front, it is building next generation of regulatory communications and expanding services across the entire network it serves. The recent acquisition of TD Ameritrade's retirement plan custody trust assets should strengthen Broadridge’s mutual fund and retirement business and enhance its position as one of the leading providers of custodial and sub-custodial solutions.
In capital markets, Broadridge continues to onboard new clients to its new GPTM global platform. The company has strong backlog and good visibility in terms of client addition. Further, it has strengthened its wealth management business through acquisitions of Rockall and RPM.
Lastly, the company is strengthening its client-focus culture and investing in technologies (digital, AI, cloud and blockchain). These, supported by leadership from existing as well as recently hired senior managers, are expected to enhance the value of its core product offerings going forward.
Few Hurdles to Counter
Broadridge’s customer communications business remains weak, declining 3% in fiscal 2019. Moreover, the amount of business to onboard is not enough to bring it back to growth.
The company’s balance sheet is highly leveraged. As of Jun 30, 2019, long-term debt was $1.47 billion while cash and cash equivalents were $273.2 million. Such a cash position implies that the company needs to generate adequate amount of operating cash flow to service its debt. High debt may limit its future expansion and worsen risk profile.
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 FLEETCOR FLT, Huron Consulting HURN and Nielsen NLSN, each currently carrying a Zacks Rank #2 (Buy). Long-term expected earnings (three to five years) growth rate for FLEETCOR, Huron Consulting and Nielsen is 15.6%, 13.5% and 12%, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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