The global outsourcing industry is growing significantly, offering cost-effective solutions and granting businesses access to skilled labor worldwide. Additionally, technological progress and enhanced global connectivity are fostering seamless collaboration across borders, further contributing to the industry's growth.
So, investors could consider buying quality outsourcing stocks Randstad N.V. (RANJY), Genpact Limited (G), and Scholastic Corporation (SCHL). These companies also pay stable dividends.
The global outsourcing industry thrives on cost efficiency, capitalizing on lower offshore labor expenses. Additionally, globalization and the opportunity to concentrate on core strengths enhance its allure, rendering outsourcing a strategic preference for businesses maneuvering through a dynamic and competitive environment.
Moreover, given the rising tech needs in the evolving world, IT services have evolved from mere cost-reduction measures to a competitive advantage for businesses. The surge in cloud services has increased the need for flexible solutions, bolstering the outsourcing industry's prospects.
The global IT outsourcing market is expected to reach $512.50 billion this year. Looking ahead, the market is likely to expand at a CAGR of 11%, reaching $777.70 billion by 2028.
Further, as outsourcing recruitment allows companies to focus on core activities while meeting evolving demands for specialized services, demand for RPO is rising. The global RPO market is projected to expand at a CAGR of 16.1%, reaching $24.32 billion by 2030.
Given the industry tailwinds, it's time to examine the fundamentals of the top three stocks to watch in the outsourcing industry.
Randstad N.V. (RANJY)
Headquartered in Diemen, the Netherlands, RANJY offers solutions in the field of work and human resources (HR). The company provides temporary staffing and permanent placement services for the light industrial, office and administrative, manufacturing and logistics, and other specialty areas.
The company pays an annual dividend of $1.55, which yields 4.41% on the current market price.
During the fiscal fourth quarter that ended December 31, 2023, RANJY reported revenue of €6.18 billion ($6.68 billion). The company’s underlying gross profit and EBITA amounted to €1.28 billion ($1.38 billion) and €265 million ($286.46 million). Its free cash flow stood at €291 million ($314.57 million).
Analysts expect the company’s revenue to grow marginally from the prior year to $27.40 billion in the fiscal year 2024.
The stock has gained 6.9% over the past nine months to close the last trading session at $27.74.
RANJY’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Value and Stability. Within the A-rated Outsourcing – Staffing Services industry, RANJY is ranked #7 of 18 stocks.
Click here to access RANJY’s additional Growth, Momentum, Quality, and Sentiment ratings.
Genpact Limited (G)
Headquartered in Hamilton, Bermuda, G offers business process outsourcing and information technology (IT) services in India, the rest of Asia, North and Latin America, and Europe. The company functions through three segments: Financial Services; Consumer and Healthcare; and High Tech and Manufacturing.
It pays an annual dividend of $0.61, which yields 1.71% on the current market price. Its dividend payouts have grown at a CAGR of 12.1% over the past three years.
During the fiscal year 2023, which ended December 2023, G’s total revenue grew 2% year-over-year to $4.48 billion. The company’s adjusted income from operations came in at $763 million, an increase of 6% year-over-year. The company’s adjusted EPS grew 9% year-over-year to $2.98.
In 2024, G expects modest revenue growth of around 2% to 3%, with digital operations and data-tech-AI services contributing to this growth. It anticipates a gross margin of about 35% and an adjusted income from operations margin of around 17%. Adjusted EPS is projected to be between $3 to $3.03.
G’s revenue and EPS are expected to increase 1.9% and marginally year-over-year to $1.11 billion and $0.68, respectively, in the fiscal first quarter (ending March 2023). Also, the company has topped the consensus EPS estimate in all four trailing quarters, which is remarkable.
Shares of G have surged 6.2% over the past three months to close the last trading session at $35.75.
G’s POWR Ratings reflect its sound fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value and Quality. It is ranked #8 out of 42 stocks in the B-rated Outsourcing – Business Services industry.
Beyond the POWR Ratings we’ve stated above, we also have G ratings for Growth, Momentum, Stability, and Sentiment. Get all G ratings here.
Scholastic Corporation (SCHL)
SCHL publishes and distributes children’s books worldwide. The company operates in three segments–Children’s Book Publishing and Distribution; Education; and International. It distributes its products and services directly to schools and libraries through retail stores and the internet.
SCHL distributes $0.80 annually as dividends, which yields 2.05% on the prevailing price level, higher than its four-year average of 1.94%. The company has raised its dividend payouts at a CAGR of 10.1% over the past three years.
SCHL’s revenues stood at $562.60 million in the fiscal second quarter, which ended November 30, 2023. The company’s adjusted EBITDA rose 1% year-over-year to $124 million and free cashflow rose 41% from the year-ago quarter to $88.60 million.
The company has revised its fiscal year 2024 guidance and now expects an adjusted EBITDA of $165 million to $175 million.
Street expects SCHL’s revenue and EPS to rise 6.3% and 12.8% year-over-year to $561.30 million and $2.55 in the fiscal fourth quarter ending May 2024.
The stock has soared 1.7% over the past month, closing the last trading session at 38.99.
SCHL’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
The stock has a B grade for Value and Quality. SCHL is ranked #9 of 21 stocks in the A-rated Outsourcing – Education Services industry.
To access SCHL’s additional POWR Ratings for SCHL’s Growth, Sentiment, Stability, and Momentum, 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.
RANJY shares were trading at $27.82 per share on Thursday afternoon, up $0.08 (+0.27%). Year-to-date, RANJY has declined -11.46%, versus a 6.32% 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.
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