3 Outsourcing Stocks Driving Success With the rise in the incorporation of digital technology, the outsourcing industry's future appears to be in a bright spot, accelerated by innovation and supported by robust expenditure. Therefore, fundamentally...
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With the rise in the incorporation of digital technology, the outsourcing industry's future appears to be in a bright spot, accelerated by innovation and supported by robust expenditure. Therefore, fundamentally strong outsourcing stocks Accenture (ACN), Stantec (STN), and ZipRecruiter (ZIP) could be solid portfolio additions at the moment. Read on….
The outsourcing industry is experiencing strong consumer demand, driven by the integration of digital technology and a rise in outsourcing spending, bolstering the industry. Given this backdrop, investors could invest in quality outsourcing stocks like Accenture plc (ACN), Stantec Inc. (STN), and ZipRecruiter, Inc. (ZIP) now.
As companies increasingly focus on cutting costs and enhancing efficiency, reliance on outsourcing has picked up pace due to the fact that offloading some operations to outside firms can create savings in payroll and training. As a result, global spending on outsourcing reached an estimated $731 billion in 2023.
Moreover, the outsourcing industry is expected to grow exponentially in 2024, with further advancements in the field of Information Technology (IT) and an increase in outsourcing spending, with some predictions being in the double digits.
The market is also expected to showcase growth by surges in Artificial Intelligence (AI) use case development, cloud migration, security investments and platform modernization, making them the key factors fueling the industry.
A pleasant market scenario for the IT outsourcing market growth is anticipated due to the increase in the adoption of cloud services, as organizations using such services often outsource the maintenance and portion of development work to third parties.
Additionally, cloud migration and adoption software have led to a shift of resources from low-value assets to specialized employees, thereby providing more flexible, tailorable, and evolution-friendly solutions. Moreover, the IT outsourcing market is estimated to reach $806.53 billion by 2029, growing at a 5.5% CAGR.
The Business Process Outsourcing (BPO) industry is also growing, accelerated by digital innovation, shifting consumer expectations, and the need for agility and resilience. With the increasing adoption of a consultative approach, BPO providers have started working closely with clients to identify digital solutions that can optimize operations, reduce costs, and drive innovation.
The BPO industry is primed for sustained growth, expanding at a CAGR of 9.1% till 2030.
With these favorable trends in mind, let's delve into the fundamentals of the three outsourcing stocks.
Accenture plc (ACN)
Headquartered in Dublin, Ireland, ACN provides strategy and consulting, industry X, song, and technology and operation services worldwide. Its services include application services, artificial intelligence, automation, business process outsourcing, and more.
On February 20, ACN announced that it has agreed to acquire GemSeek, a leading customer experience analytics provider helping global businesses understand customers through insights, analytics and AI-powered predictive models.
The acquisition underscores ongoing investment by ACN Song, the world's largest tech-powered creative group in data and AI capabilities to help clients grow their business and sustain relevance with customers.
On February 15, ACN paid its shareholders a quarterly cash dividend of $1.29 per share, representing a 15% increase over the quarterly dividend rate of $1.12 per share in fiscal year 2023.
It pays an annual dividend of $5.16 per share, which translates to a dividend yield of 1.42% on the current share price. Its four-year average yield is 1.33%. ACN's dividend payments have grown at CAGRs of 12.8% and 11.6% over the past three and five years, respectively.
ACN's trailing-12-month cash from operations of $9.53 billion is significantly higher than the industry average of $81.44 million. Its trailing-12-month ROCE and ROTA of 27.71% and 13.35% are considerably higher than the industry averages of 2.12% and 0.92%, respectively.
For the fiscal first quarter that ended November 30, 2023, ACN's revenues increased 3% year-over-year to $16.22 billion, while adjusted total operating income stood at $2.70 billion. Moreover, its adjusted income before income taxes stood at $2.76 billion. For the same quarter, its adjusted net income and adjusted earnings per share stood at $2.12 billion and $3.27, respectively.
Street expects ACN's revenue for the fiscal second quarter ending February 2024 to increase marginally year-over-year to $15.90 billion, and its EPS is expected to increase 12.1% year-over-year to $2.68. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 34.1% over the past year to close the last trading session at $360.91. Over the past nine months, it has gained 24.5%.
ACN's robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B for Stability and Sentiment. It is ranked #4 within the A-rated nine-stock Outsourcing - Tech Services industry.
Click here for the additional POWR Ratings for ACN (Growth, Value, and Momentum).
Stantec Inc. (STN)
Headquartered in Edmonton, Canada, STN provides e-professional services in the areas of infrastructure and facilities to public and private sector clients in Canada, the United States, and internationally.
On January 10, STN announced its plans to acquire Morrison Hershfield, a 1,150-person engineering and management firm headquartered in Markham, Ontario. With a particularly strong presence in Canada, Morrison Hershfield shall increase STN's Canadian workforce by approximately 10%.
The acquisition of Morrison Hershfield should expand STN's presence in most major Canadian markets and further strengthen its U.S. presence in building engineering.
On November 29, 2023, STN announced the closing of its previously announced bought deal public offering of common shares. Pursuant to the Offering, STN issued 3.11 million common shares from treasury, including 405,450 shares issued in connection with the exercise in full of the over-allotment option granted to the underwriters at a price of $92.50 per share, for total gross proceeds of $287.53 million.
The company plans to utilize the net proceeds from the offering to repay balance outstanding on its revolving credit facility to create future opportunities for acquisitions and growth initiatives.
It pays an annual dividend of $0.58 per share, which translates to a dividend yield of 0.70% on the current share price. Its four-year average yield is 1.12%. STN's dividend payments have grown at CAGRs of 8.3% and 7% over the past three and five years, respectively.
STN's trailing-12-month cash from operations of $361.28 million is 23.5% higher than the industry average of $292.51 million. Its trailing-12-month gross profit and levered FCF margins of 54.41% and 9.22% are 78.8% and 42.3% higher than the industry averages of 30.44% and 6.48%, respectively.
For the fiscal third quarter that ended September 30, 2023, STN's net revenue and adjusted EBITDA increased 13.5% and 24.8% year-over-year to CAD1.32 billion ($974.25 million) and CAD241.30 million ($178.53 million), respectively.
For the same quarter, its adjusted net income and adjusted EPS stood at CAD126.70 million ($93.74 million) and CAD1.14, up 33.4% and 32.6% from the year-ago quarter, respectively.
Street expects STN's revenue and EPS for the fiscal first quarter ending March 2024 to increase 8.2% and 18.6% year-over-year to $994.07 million and $0.65, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 55.5% over the past year to close the last trading session at $82.32. Over the past nine months, it has gained 40%.
STN's solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
STN has an A grade for Stability and a B for Growth, Momentum, Sentiment, and Quality. Within the B-rated 42-stock Outsourcing - Business Services industry, it is ranked #7.
Beyond what we've stated above, we have also rated the stock for Value. Get all ratings of STN here.
ZipRecruiter, Inc. (ZIP)
ZIP operates a marketplace that connects job seekers and employers. The company's platform is a two-sided marketplace that enables employers to post jobs and access other features, where job seekers are able to apply for jobs with a single click.
On November 2, 2023, ZIP launched a new home for its economic research - ZipRecruiter-Research.org. The new site features commentary and analysis from its team of economists and data scientists on the latest labor market data, as well as insights from the company's marketplace data and quarterly surveys.
With a dedicated focus on collecting and analyzing comprehensive employment data, the team uses the new site to deliver insights that drive informed decision-making for job seekers, employers, and policymakers alike.
ZIP's trailing-12-month asset turnover ratio of 0.99x is 99.4% higher than the industry average of 0.49x, while its trailing-12-month ROCE of 103.65% is significantly higher than the industry average of 4.43%.
For the fiscal third quarter that ended September 30, 2023, ZIP's revenue and gross profit stood at $155.63 million and $141.10 million, respectively. Moreover, its adjusted EBITDA increased 5.3% from the prior-year quarter to $54.38 million.
For the same quarter, its net income and net income per share stood at $24.08 million and $0.23, up 17.1% and 35.3% from the year-ago quarter, respectively.
Street expects ZIP's revenue and EPS for the fiscal year ending December 2024 to be $572.63 million and $0.27, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained marginally year-to-date to close the last trading session at $13.96. Over the past three months, it has gained 10.4%.
ZIP's POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
ZIP has an A grade for Quality and a B for Value. Within the A-rated 18-stock Outsourcing - Staffing Services industry, it is ranked #6.
To see additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for ZIP, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ACN shares were trading at $371.52 per share on Thursday morning, up $10.61 (+2.94%). Year-to-date, ACN has gained 6.26%, versus a 6.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals.Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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