The global outsourcing industry’s growth is fueled by cost efficiency, leveraging lower offshore labor costs. Moreover, globalization and the ability to focus on core competencies further boost its appeal, making outsourcing a strategic choice for businesses navigating a dynamic and competitive landscape.
Therefore, investors could consider investing in top outsourcing stocks Huron Consulting Group Inc. (HURN), Universal Technical Institute, Inc. (UTI), and Crawford & Company (CRD.A) this month.
As technology continues to advance and industries evolve, outsourcing remains a key strategy for organizations aiming to stay competitive and innovative in the global marketplace. Additionally, the flexibility and scalability offered by outsourcing contribute to its appeal, allowing companies to adapt to changing business needs.
Additionally, the growth of the Business Process Outsourcing (BPO) market is driven by enterprises aiming to enhance efficiency, agility, and core competencies, along with a focus on reducing operating costs. Organizations are increasingly adopting BPO services to access global resources, especially with the rising demand for technological trends like cloud computing and Artificial Intelligence (AI).
Moreover, the popularity of cloud computing is notable, offering benefits such as reduced costs, improved quality control, and flexible provisioning, contributing to its positive adoption trend in the market. As a result, the global BPO market is projected to expand at a CAGR of 9.4% until 2030.
Moreover, the flourishing global education outsourcing sector is witnessing growth as educational institutions delegate specific functions to specialized entities. This delegation aims to improve operational efficiency, address skill shortages, and minimize costs.
Additionally, there is a growing imperative to bridge skill gaps and provide high-quality training, further amplifying the potential of the learning services market. The global learning services outsourcing market is projected to grow at a CAGR of 8.4% and reach $30.70 billion by 2027.
In addition, the rising attrition rate in various industries favors the Recruitment Process Outsourcing (RPO) market, as service providers offer swift replacements for departing candidates. Additionally, employers focusing on core competencies and cost reduction contribute to the market's growth. The global RPO market is projected to expand at a CAGR of 16.1%, reaching $24.32 billion by 2030.
Considering these conducive trends, let’s examine the fundamentals of the three outsourcing stock picks.
Huron Consulting Group Inc. (HURN)
HURN is a professional services firm providing advisory services in healthcare, education, and commercial sectors globally. Its offerings include financial and operational improvement, digital solutions, and organizational transformation across diverse industries.
HURN’s trailing-12-month levered FCF margin of 7.47% is 24.8% higher than the industry average of 5.98%. Its 1.08x trailing-12-month asset turnover ratio is 34.5% higher than the 0.80x industry average.
During the third quarter, which ended September 30, 2023, HURN’s revenues rose 25.5% year-over-year to $358.18 million. The company reported adjusted net income and EBITDA of $27.17 million and $48 million, respectively, up 31% and 31.6% from the previous year’s quarter. Moreover, its adjusted EPS increased 37.6% from the prior-year quarter to $1.39.
The company raised its fiscal year 2023 revenue guidance to a range of $1.35 billion to $1.37 billion. Additionally, it expects adjusted EBITDA to represent 12% to 12.5% of revenues and non-GAAP adjusted EPS to be in the range of $4.70 to $4.90.
HURN’s revenue and EPS are expected to grow 11.4% and 10.3% year-over-year to $354.44 million and $0.96, respectively, for the first quarter ending March 2024. The company surpassed the revenue and EPS estimates in each of the trailing four quarters, which is impressive.
HURN’s shares increased 45.1% over the past year to close the last trading session at $103.11.
HURN’s POWR Ratings reflect its sound prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
HURN has an A grade for Sentiment. Within the A-rated Outsourcing - Management Services industry, it is ranked #4 among five stocks.
In addition to the POWR Ratings stated above, one can access HURN’s additional Growth, Value, Momentum, Stability, and Quality ratings here.
Universal Technical Institute, Inc. (UTI)
UTI provides education programs in transportation, skilled trades, and healthcare in the United States through its UTI and Concorde segments. The company offers a variety of certificate, diploma, and degree programs under different brands.
On December 20, 2023, UTI’s Concorde Career Colleges launched dental hygiene and sonography programs in response to critical shortages in the healthcare workforce, addressing the growing demand for these professions in locations like Jacksonville, Orlando, and San Bernardino.
UTI’s trailing-12-month gross profit margin of 53.83% is 52.1% higher than the industry average of 35.38%. Its 9.33% trailing-12-month CAPEX/Sales is 207.3% higher than the 3.04% industry average.
In the fourth quarter that ended September 30, 2023, UTI’s revenues increased 53.9% from the prior-year quarter to $170.30 million. The company's net income and adjusted EBITDA grew 136.9% and 27% year-over-year to $6.70 million and $19.17 million, respectively. Moreover, its EPS rose 233.3% from the previous-year quarter to $0.10.
For the fiscal year 2024, the company projects its revenue to be in the range of $705 million to 715 million. Also, its net income and EPS are expected to range from $34 million to $38 million and $0.53 to 0.58, respectively. Additionally, adjusted EBITDA is forecasted at $98 million to $102 million, and adjusted free cash flow is projected to be between $62 million and $66 million.
Analysts expect UTI’s revenue and EPS is expected to grow 40.3% and 120% year-over-year to $168.33 million and $0.04, respectively, for the first quarter ended December 2023. The company surpassed the revenue estimates in each of the trailing four quarters.
The stock has gained 83.5% over the past year to close the last trading session at $12.53.
UTI’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Growth. Within the A-rated Outsourcing - Education Services industry, it is ranked #5 among 20 stocks.
To see UTI’s additional POWR Ratings for Value, Momentum, Stability, and Quality, click here.
Crawford & Company (CRD.A)
CRD.A globally offers claims management services for various insurances, workers' compensation, and technology solutions through segments like North America Loss Adjusting; International Operations; Broadspire; and Platform Solutions.
CRD.A’s trailing-12-month return on total assets of 2.10% is 80.9% higher than the industry average of 1.16%. Its 1.56x trailing-12-month asset turnover ratio is 649.2% higher than the 0.21x industry average.
On December 1, 2023, CRD.A paid a quarterly dividend of 0.07 per share on the Class A common stock and $0.07 per share on the Class B common stock. The company pays $0.28 annually, which translates to a yield of 2.30% on the prevailing price level. Its four-year average dividend yield is 2.97%. The company has raised its dividend payouts at a CAGR of 11% over the past three years.
In the third quarter, which ended September 30, 2023, CRD.A’s total revenues increased 10.3% year-over-year to $337.66 million. The company's total costs and expenses decreased 5.6% from the previous-year quarter to $316.51 million.
Its net income and EPS amounted to $12.17 million and $0.25, respectively, compared to its prior-year quarter's net loss of $15.25 million and $0.31 per share.
Street expects CRD.A’s revenue and EPS to grow 7.6% and 51.4% year-over-year to $1.28 billion and $1.06, respectively, for the fiscal year ended December 2023. The company surpassed the EPS estimates in each of the trailing four quarters.
CRD.A’s shares have gained 108.2% over the past year to close the last trading session at $12.20.
CRD.A’s POWR Ratings reflect an optimistic outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B for Growth, Value, and Stability. Within the B-rated Outsourcing - Business Services industry, it is ranked #4 of 43 stocks.
Click here for CRD.A’s additional Momentum and Quality ratings.
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HURN shares were trading at $103.08 per share on Friday morning, down $0.03 (-0.03%). Year-to-date, HURN has gained 0.27%, versus a 0.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
Top 3 Outsourcing Stocks for January 2024 StockNews.com
