Broadridge (BR) On Growth Trajectory: Should You Hold?

A successful portfolio manager understands the importance of adding well-performing stocks at the right time. Indicators of a stock’s bullish run include a rise in its share price and strong fundamentals.

One such stock that investors need to hold on to right now is Broadridge Financial Solutions Inc. (NYSE:BR) . Although there are a few concerns but they are short-lived. So, the stock has the potential to perform well in the long run.

In the last one year, Broadridge’s shares increased 16.1%, outperforming the Zacks categorized Outsourcing industry's gain of only 2.8%.

Let’s look at the reasons behind Broadridge’s solid momentum.

What’s Driving the Stock?

The benefit from improved pricing is well-reflected in the company’s last quarterly results. The company’s third-quarter 2017 revenues of $1008.9 increased a whopping 46.5% year over year. Also, it surpassed the Zacks Consensus Estimate of $994 million. The year-over-year increase was driven primarily by North American Customer Communications (NACC) acquired from DST Systems Inc. (NYSE:DST) . Better-than-expected revenues from closed sales was also a drive.

The company posted adjusted earnings per share (EPS) of 69 cents (excluding acquisition and amortization related expenses), beating the Zacks Consensus Estimate of 59 cents.

An encouraging top and bottom-line performance, way above the respective Zacks Consensus Estimate, helped in boosting investors’ confidence in the company’s prospects.

For 2017, Broadridge continues to project revenue growth in the range of 40–42%, while recurring revenue growth is expected in the range of 29–31%. The company continues to expect recurring revenues from closed sales to be a key growth driver and range within $140–$180 million. Adjusted operating income margin is expected to be approximately 15%. Adjusted earnings are expected to increase in the range of 12–17%. Management expects free cash flow in the range of $350–$400 million.

We remain optimistic about Broadridge’s strategic acquisitions, product launches, share repurchase program and dividend paying initiatives. We also believe that the company’s close association with Accenture (NYSE:ACN) will be beneficial in the long run.

Notably, the company is on the growth trajectory, thereby gathering momentum from its positive earnings surprise history and strong fundamentals. It posted a positive earnings surprise in two of the last four quarters, with an average positive surprise of 3.6%.

Risks Remain

Competition from DST Systems Inc. and pricing pressure remain headwinds. Going forward, we note that Broadridge currently has a trailing 12-month P/E ratio of 24.93. This level compares unfavorably with what the industry saw over the last one year. The ratio is higher than the average level of 24. Hence, valuation looks slightly stretched from the P/E perspective.

Bottom Line

Considering these positives, we believe that Broadridge is one such technology stock that deserves a place in investors’ portfolio. We can essentially filter the negatives and focus on the positives which drive price.

Broadridge carries a Zacks Rank #3 (Hold). A better-ranked stock worth considering in the broader technology sector are DXC Technology Company (NYSE:DXC) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DXC has a long-term expected earnings growth rate of 8%.

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