The future of the outsourcing industry looks bright, driven by global trends in technology, digitization, and cloud migrations. The need for skilled professionals, flexibility, cost savings, operational efficiency, innovation, intellectual property, and thought leadership propels the need for outsourcing worldwide.
Given this backdrop, it could be wise to invest in fundamentally strong outsourcing stocks Cognizant Technology Solutions Corporation (CTSH), Mitie Group plc (MITFY), Perdoceo Education Corporation (PRDO), and Hudson Global, Inc. (HSON).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the outsourcing industry is well-positioned for growth.
The outsourcing industry is shaped by strategically delegating non-core tasks to external specialists, allowing companies to improve efficiency, flexibility, and access to specialized skills. Globally, organizations turn to outsourcing and staffing services for project management and to expedite hiring processes, reduce costs, and maintain business productivity.
The rising demand for effective recruiting and the trend of outsourcing recruitment to third-party providers is expected to drive growth in the Recruitment Process Outsourcing (RPO) market. The global RPO market is projected to expand at a CAGR of 16.1%, reaching $24.32 billion by 2030.
As EdTech solutions advance with the Internet of Things (IoT) and AI, they will significantly contribute to the growth of the education outsourcing market. The demand for personalized learning, efficient grading, specialized learning tools, and intelligent tutoring systems is driving the expansion of the education outsourcing sector.
Educators are now outsourcing to specialized organizations to increase efficiencies, address skill shortages, and lower costs. Additionally, the growing demand to address skill gaps and provide quality training is boosting the prospects of the learning services market. The global learning services outsourcing market is projected to grow at a CAGR of 5.6% between 2023 and 2030.
Moreover, IT outsourcing has evolved beyond cutting costs, thanks to cloud migrations and service choices, high demand for cybersecurity, automation, etc. It's fueled by organizational goals like business growth, enhancing customer experience, and staying competitive. The global IT Services market is projected to grow at a CAGR of 9.7% to reach revenues of $2.59 trillion by 2030.
Let's take a closer look at the fundamentals of the featured stocks.
Cognizant Technology Solutions Corporation (CTSH)
CTSH is a professional services company that provides consulting technology and outsourcing services in North America, Europe, and internationally. It operates through four segments: Financial Services, Health Sciences, Products and Resources, and Communications, Media and Technology.
On November 23, 2023, CTSH announced a collaboration with Alm. Brand Group, a leading Danish insurance company, will take over and automate outsourced business processes. The partnership aims to enhance efficiency, improve customer experience, and increase competitiveness by automating tasks such as insurance policies and administrative functions.
In terms of forward non-GAAP P/E, CTSH’s 16.08x is 28.6% lower than the 22.51x industry average. Its 10.55x forward EV/EBITDA is 29.5% lower than the 14.98x industry average. Likewise, its 12.55x forward EV/EBIT is 35% lower than the 19.32x industry average.
CTSH’s revenues for the third quarter ended September 30, 2023, increased 0.8% year-over-year to $4.90 billion. The company’s adjusted income from operations came in at $758 million. In addition, its net income and adjusted EPS were $525 million and $1.16, respectively.
Street expects CTSH’s EPS for the quarter ending December 31, 2023, to increase 2.8% year-over-year to $1.04, while its revenue for the quarter ending June 30, 2024, is expected to increase 0.5% year-over-year to $4.91 billion. It surpassed the Street EPS estimates in three of the trailing four quarters. The stock has gained 24.4% year-to-date to close the last trading session at $71.16.
CTSH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Stability and Quality. Within the A-rated Outsourcing - Tech Services industry, it is ranked #2 out of 9 stocks. Click here to access CTSH’s Growth, Value, Momentum, and Sentiment ratings.
Mitie Group plc (MITFY)
Headquartered in London, the United Kingdom, MITFY and its subsidiaries provide strategic outsourcing services in the United Kingdom and internationally. The company operates in eight segments: Business Services, Technical Services, Central Government & Defense (CG&D), Communities, Care & Custody, Landscapes, Waste, and Spain.
On October 25, 2023, MITFY secured a three-year contract with the Port of Dover for waste management services, focusing on minimizing waste and achieving zero waste to landfill. The agreement includes circular economy initiatives such as re-use projects and eliminating single-use plastics. MITFY will assist the Dover Harbour Board in collecting detailed carbon and waste data across the entire site.
In terms of forward EV/Sales, MITFY’s 0.31x is 82.3% lower than the 1.77x industry average. Its 5.69x forward EV/EBITDA is 49.4% lower than the 11.25x industry average. Likewise, its 0.29x forward Price/Sales is 79% lower than the 1.37x industry average.
For the six months ended September 30, 2023, MITFY’s total group revenue increased 11.2% year-over-year to £2.08 billion ($2.63 billion). Its total operating profit increased 12.5% year-over-year to £56.80 million ($71.87 million).
For the same period, the company’s total profit after tax and EPS came in at £42.90 million ($54.28 million) and 3p, up 21.5% and 30.4% over the prior-year quarter, respectively. Also, its return on invested capital stood at 24.6%, compared to 22.8% over the prior-year period. In addition, its cash generated from operations increased 274.4% year-over-year to £73 million ($92.37 million).
For the fiscal year ending March 31, 2024, MITFY’s revenue is expected to increase 9.8% year-over-year to $5.59 billion. The stock has gained 44.5% year-to-date to close the last trading session at $5.13.
MITFY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Value and Stability and a B for Growth. Within the A-rated Outsourcing - Management Services industry, it is ranked first out of 5 stocks. In total, we rate MITFY on eight different levels. Beyond what we stated above, we also have given MITFY grades for Momentum, Sentiment, and Quality. Get all the MITFY ratings here.
Perdoceo Education Corporation (PRDO)
PRDO provides postsecondary education through online, campus-based, and blended learning programs in the United States. The company operates in two segments: Colorado Technical University and The American InterContinental University System.
In terms of forward non-GAAP PEG, PRDO’s 0.57x is 63.5% lower than the 1.57x industry average. Its 8.58x forward non-GAAP P/E is 44% lower than the 15.33x industry average. Likewise, its 4.03x forward EV/EBIT is 70.4% lower than the 13.59x industry average.
PRDO’s total revenue for the third quarter ended September 30, 2023, increased 6.8% year-over-year to $179.92 million. Its adjusted operating income rose 22.1% year-over-year to $47.23 million. The company’s net income rose 87.2% year-over-year to $41.31 million. In addition, its adjusted EPS increased 64.1% year-over-year to $0.64.
Street expects PRDO’s EPS and revenue for the fiscal year ending December 31, 2023, to increase 26.4% and 1.9% year-over-year to $2.06 and $708.29 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 41.9% to close the last trading session at $17.68.
PRDO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value and Sentiment. Within the A-rated Outsourcing - Education Services industry, it is ranked first out of 20 stocks. To see PRDO’s Growth, Momentum, and Stability ratings, click here.
Hudson Global, Inc. (HSON)
HSON provides talent solutions for mid-to-large-cap multinational companies and government agencies under the Hudson RPO brand in the Americas, the Asia Pacific, and Europe. It offers recruitment process outsourcing (RPO) services and RPO contracting services.
On November 1, 2023, HSON announced the acquisition of Hudson Global Resources (Singapore) Pte Ltd, significantly increasing its market presence in Southeast Asia. The acquisition identifies numerous synergies, and Hudson Singapore brings a 30-year track record in senior placements and project recruitment across Southeast Asia.
In terms of forward non-GAAP P/E, HSON’s 12.30x is 31.8% lower than the 18.02x industry average. Its 0.61x forward non-GAAP PEG is 64% lower than the 1.71x industry average. Likewise, its 0.15x forward EV/Sales is 91.5% lower than the 1.77x industry average.
For the third quarter that ended September 30, 2023, HSON’s revenue came in at $39.40 million. Its operating income came in at $1.28 million, up 1.7% year-over-year. Additionally, the company’s adjusted net income and EPS stood at $755 thousand and $0.24, respectively. Also, its adjusted EBITDA stood at $2 million.
For the quarter ending December 31, 2023, HSON’s EPS is expected to increase 48.5% year-over-year to $0.49. Its revenue for the fiscal year ending December 31, 2024, is expected to increase 4% year-over-year to $172.02 million. Over the past month, the stock has declined 0.6% to close the last trading session at $16.11.
It’s no surprise that HSON has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
It has an A grade for Value and Sentiment and a B for Quality. It is ranked first among 22 stocks in the A-rated Outsourcing - Staffing Services industry. Access additional HSON grades for Growth, Momentum, and Stability here.
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CTSH shares were trading at $70.31 per share on Tuesday morning, down $0.85 (-1.19%). Year-to-date, CTSH has gained 25.09%, versus a 20.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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