The global outsourcing industry is experiencing substantial changes, driven by trends like nearshore outsourcing, cloud-based outsourcing, robotic process automation, and an increased emphasis on knowledge process outsourcing. These developments are reshaping the outsourcing landscape on a significant scale.
Given this backdrop, it could be wise to invest in fundamentally strong outsourcing stocks, Nomura Research Institute, Ltd. (NRILY), Stantec Inc. (STN), ManpowerGroup Inc. (MAN) and Hudson Global, Inc. (HSON) for steady returns.
Before diving deeper into the fundamentals of these stocks, let’s understand the industry landscape better.
Outsourcing is a popular business strategy as it enables businesses to achieve operational efficiency, helps to focus on critical business aspects, cuts costs, reduces dependency, improves productivity, and helps improve competitiveness. Globally, organizations are outsourcing for various reasons, ranging from business services to tech services and staffing and recruitment services.
Technological advancements such as cloud computing and artificial intelligence are boosting the demand for outsourcing due to the need for specialized skills and cost savings.
Moreover, due to the increasing complexity of business operations, companies are outsourcing non-core processes and putting their focus on their core competencies. The U.S. business process outsourcing market is expected to CAGR of 9.1% between 2023 and 2030.
The rising need for efficient recruitment processes and the growing practice of outsourcing recruitment functions to external providers are anticipated to fuel the growth of the Recruitment Process Outsourcing (RPO) market. Projections indicate that the global RPO market will grow at a CAGR of 16.1% to reach $24.32 billion by 2030.
Furthermore, widespread cloud migration, growing adoption of emerging technologies, and the high demand for cybersecurity solutions are driving the demand for tech services. The global IT outsourcing market is anticipated to expand at a CAGR of 9.3% to reach $1.42 trillion by 2031.
Considering these conducive trends, let’s take a look at the fundamentals of the stocks mentioned above.
Nomura Research Institute, Ltd. (NRILY)
Based in Tokyo, Japan, NRILY provides consulting, financial information technology (IT) solutions, industrial IT solutions, and IT platform services in Japan and internationally. It operates through the Consulting, Financial IT Solutions, Industrial IT Solutions, and IT Platform Services segments.
In terms of the trailing-12-month EBIT margin, NRILY’s 15.68% is 221.5% higher than the 4.88% industry average. Likewise, its 10.92% trailing-12-month net income margin is 365.6% higher than the industry average of 2.35%. Furthermore, the stock’s 9.07% trailing-12-month Return on Total Assets is significantly higher than the industry average of 0.26%.
For the six months ended September 30, 2023, NRILY’s revenue increased 6.8% year-over-year to ¥362.07 billion ($2.52 billion). Its gross profit increased 9.3% year-over-year to ¥128.37 billion ($892.49 million). The company’s operating profit rose 6.5% over the prior-year quarter to ¥58.87 billion ($409.29 million). In addition, its profit attributable to owners of parent increased 5% year-over-year to ¥37.66 billion ($261.83 million).
Street expects NRILY’s revenue for fiscal 2024 to increase 57.5% year-over-year to $5.17 billion. Over the past nine months, NRILY’s shares have gained 24.4% to close the last trading session at $28.53.
NRILY’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.
NRILY has a B grade for Stability and Quality. Within the A-rated Outsourcing – Tech Services industry, it is ranked #4 out of nine stocks. In addition to the ratings stated above, one can access NRILY’s grades for Growth, Value, Momentum, and Sentiment ratings here.
Stantec Inc. (STN)
Headquartered in Edmonton, Canada, STN offers e-professional services in the areas of infrastructure and facilities to public and private sector clients internationally. The company provides consulting services in engineering, architecture, interior design, and landscape architecture. surveying, and project management. It also offers clients planning and design consulting services.
On November 14, 2023, STN announced that it will acquire ZETCON Engineering, helping it gain a strong presence in Germany's construction market. The acquisition aligns with STN's expansion strategy, setting it up for long term growth in Europe.
In terms of the trailing-12-month gross profit margin, STN’s 54.41% is 78.4% higher than the 30.49% industry average. Likewise, its 9.22% trailing-12-month levered FCF margin is 54.1% higher than the industry average of 5.98%. Furthermore, the stock’s 0.85x trailing-12-month asset turnover ratio is 6% higher than the industry average of 0.80x.
STN’s net revenue for the third quarter, which ended on September 30, 2023, increased 13.5% year-over-year to CAD1.32 billion ($987.31 million). The company’s adjusted EBITDA increased 24.8% over the previous year's quarter to CAD 241.30 million ($180.48 million).
The company’s adjusted net income increased 33.4% over the prior year quarter to CAD126.70 million ($94.77 million). Also, its adjusted EPS came in at CAD1.14, representing an increase of 32.6% year-over-year.
Street expects STN’s revenue and EPS for the quarter ending December 31, 2023, to increase 9.6% and 6.1% year-over-year to $914.29 million and $0.64, respectively. The company topped the Street EPS estimate in each of the trailing four quarters, which is remarkable. Over the past year, the stock has gained 64% to close the last trading session at $77.28.
STN’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth, Momentum, Stability, and Quality. It is ranked #7 out of 41 stocks in the B-rated Outsourcing – Business Services industry. In addition to the POWR Ratings highlighted above, one can access STN’s Value rating here.
ManpowerGroup Inc. (MAN)
MAN is a global provider of workforce solutions and services. The company offers permanent, temporary, and contract recruitment of professionals and administrative and industrial positions under the Manpower and Experis brands.
On August 4, 2023, MAN announced a new share repurchase program authorizing the buyback of up to 5 million shares, supplementing the existing repurchase program authorized in August 2021. This move signals the company's commitment to returning value to shareholders and reflects confidence in its financial position.
In terms of the trailing-12-month Return on Total Capital, MAN’s 8.58% is 21% higher than the 7.09% industry average. Likewise, its 2.23x trailing-12-month asset turnover ratio is 178.6% higher than the industry average of 0.80x.
For the fiscal third quarter ended September 30, 2023, MAN’s revenues from services amounted to $4.68 billion. Its gross profit stood at $821.90 million. The company’s net earnings came in at $30.30 million. Also, its EPS came in at $0.60.
For fiscal 2024, MAN’s EPS is expected to increase 0.4% year-over-year to $5.80. Over the past three months, the stock has gained 6.8% to close its last trading session at $79.58.
MAN’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth. It is ranked #10 among 19 stocks in the A-rated Outsourcing – Staffing Services industry. To see MAN’s ratings for Momentum, Stability, Sentiment, and Quality, 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.
HSON’s CEO Jeff Eberwein said, “We believe a multi-service, total talent strategy consisting of recruitment services, contracting, project work, RPO, and MSP is essential to accelerate our growth in Asia, where RPO adoption has lagged that of other regions, and Hudson Singapore brings to Hudson RPO the complement of capabilities needed to execute on this strategy.”
“Together, we believe we can achieve our Asia growth goals through cross-selling Hudson RPO’s services among Hudson Singapore’s diverse, blue chip client base as well as leveraging our recognition as a larger, full-service Asia enterprise to win new business and gain share in this important market,” he added.
In terms of the trailing-12-month asset turnover ratio, HSON’s 2.68x is 234.8% higher than the 0.80x industry average.
HSON’s revenue for the third quarter that ended September 30, 2023, came in at $39.40 million. Its operating income increased 1.7% year-over-year to $1.28 million. 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.
Analysts expect HSON’s EPS for the quarter ending December 31, 2023, to increase 48.5% year-over-year to $0.49. Its revenue for the fiscal 2024 is expected to increase 4% year-over-year to $172.02 million. Over the past month, the stock has gained 3% to close the last trading session at $16.30.
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 in the Outsourcing – Staffing Services industry. Click here to see the other ratings of HSON for Growth, Momentum, and Stability.
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NRILY shares were trading at $27.65 per share on Wednesday afternoon, down $0.88 (-3.09%). Year-to-date, NRILY has gained 17.79%, versus a 26.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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