The outlook for the outsourcing industry remains promising this year, driven by rapid technological advancements such as Artificial Intelligence (AI), machine learning, and automation. By seamlessly incorporating these technologies into their services, the industry enhances operational efficiency, reduces costs, and delivers solutions of increased value to clients.
Given the backdrop, it could be an opportune time to scoop up the shares of three fundamentally sound outsourcing stocks, Laureate Education, Inc. (LAUR), ZipRecruiter, Inc. (ZIP), and CRA International, Inc. (CRAI), which appear well equipped to capitalize on the industry trends.
However, before we dive deeper into the fundamentals of the featured stocks, let’s take a peek at the favorable industry trends.
Last year, outsourcing firms grappled with enduring challenges, including operational bottlenecks, rising costs, and human errors. Recognizing the essential role of AI-powered automation, numerous outsourcing firms decided to adopt this technology. The significance of AI-powered automation lies in its capacity to streamline workflows, automate repetitive tasks, and enhance human capabilities.
That said, as we move further in 2024, there will be a heightened emphasis on leveraging AI-powered automation within Business Process Outsourcing (BPO) firms. This strategic move aims to enhance personalization, implement predictive analytics, and foster more profound integration across diverse systems.
According to Statista, revenue in the global business process outsourcing market is forecasted to reach $370 billion in 2024 and is further projected to hit a remarkable $440 billion in 2028, growing at a modest CAGR of 4.4% from 2024 to 2028, underscoring the rising demand for outsourcing services.
Furthermore, there is an anticipated surge in demand for personalized learning and cost-effective, scalable learning systems. Educators are increasingly turning to outsourcing as a strategy to enhance learning and development, improve efficiency, tackle skill shortages, and cut down on expenses.
Projections indicate that the global learning services outsourcing market is poised to experience a CAGR of 5.6% from 2023 to 2030.
In light of such encouraging industry prospects, let’s now dig deeper into the fundamentals of the featured stocks in detail:
Laureate Education, Inc. (LAUR)
LAUR offers higher education programs and services to students through a network of universities and higher education institutions. It provides a range of undergraduate and graduate degree programs in the areas of business and management, medicine and health sciences, engineering and information technology, and more.
The stock’s trailing-12-month EBIT margin of 21.70% is 185.6% higher than the 7.60% industry average. Its trailing-12-month net income margin of 7.39% is 63.4% higher than the industry average of 4.52%. Furthermore, LAUR’s trailing-12-month EBITDA margin of 26.45% is 141.4% higher than the 10.96% industry average.
For the fiscal third quarter, which ended on September 30, 2023, LAUR’s revenue increased 20.1% year-over-year to $361.50 million, while its operating income grew 4.3% from the year-ago value to $58.70 million.
The company’s net income and EPS amounted to $36 million and $0.23, representing increases of 16.1% and 21.1% from the prior-year quarter, respectively. Also, its adjusted EBITDA improved 7.7% from the year-ago value to $78.40 million.
Street expects LAUR’s revenue and EPS for the fiscal fourth quarter (ended December 2023) to increase 11.9% and 40% year-over-year to $387.80 million and $0.35, respectively. Moreover, the company has an impressive revenue surprise history, surpassing the revenue estimates in each of the trailing four quarters.
In addition, LAUR’s revenue and EBITDA have grown at CAGRs of 9.2% and 22.6% over the past three years, respectively. Meanwhile, its EBIT has improved at a CAGR of 34.3% over the same period.
Over the past six months, LAUR’s shares surged 6.6% to close the last trading session at $12.62.
LAUR’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating 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 Sentiment. In the A-rated 20-stock Outsourcing - Education Services industry, it is ranked #8. Click here to see LAUR’s ratings for Growth, Value, Momentum, Stability, and Quality.
ZipRecruiter, Inc. (ZIP)
ZIP operates a marketplace that connects job seekers and employers. The company's platform is a two-sided marketplace, which enables employers to post jobs and access other features, where job seekers are able to apply to jobs with a single click.
On November 2, 2023, ZIP unveiled a revamped home site dedicated to its economic research endeavors. The updated platform showcases commentary and analysis from its team of economists and data scientists, offering insights into the most recent labor market data. Additionally, the site presents findings from the company's marketplace data and quarterly surveys.
With an exclusive emphasis on gathering and scrutinizing extensive employment data, the team aims to leverage the new site to provide valuable insights that contribute to well-informed decision-making for job seekers, employers, and policymakers alike.
ZIP’s trailing-12-month EBIT margin of 14.23% is 73% higher than the 8.22% industry average. Its trailing-12-month net income margin of 8.73% is 171.7% higher than the industry average of 3.21%. Furthermore, the stock’s trailing-12-month asset turnover ratio of 0.99x is 91% higher than the 0.52x industry average.
In the fiscal third quarter, which ended on September 30, 2023, ZIP’s revenue amounted to $155.63 million, while its income from operations rose 10.8% from the year-ago value to $32.67 million.
The company’s net income and net income per share grew 17.1% and 35.3% from the prior-year quarter to $24.08 million and $0.23, respectively. In addition, its adjusted EBITDA came in at $54.38 million, up 5.3% year-over-year.
Analysts predict ZIP’s revenue and EPS for the fiscal fourth quarter (ended December 2023) to come in at $128.29 million and $0.07, respectively. Furthermore, its EPS is anticipated to improve by 10.3% per annum over the next five years.
Moreover, the company topped its EPS and revenue estimates in each of the trailing four quarters, which is excellent. Over the past three years, ZIP’s revenue has improved at a CAGR of 28.2%.
The stock has soared 20% over the past three months to close the last trading session at $14.58.
ZIP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value and Sentiment. Within the A-rated 18-stock Outsourcing - Staffing Services industry, it is ranked #5. Click here to see the other ratings of ZIP for Growth, Momentum, and Stability.
CRA International, Inc. (CRAI)
CRAI provides economic, financial, and management consulting services in the United States, the United Kingdom, and internationally. It advises clients on economic and financial matters pertaining to litigation and regulatory proceedings; and guides corporations through business strategy and performance-related issues.
On December 8, 2023, CRAI paid its shareholders a quarterly dividend of $0.42 per share, reflecting a 17% uptick from its previous quarterly dividend of $0.36. The company’s annual dividend of $1.68 translates to a 1.65% yield on the prevailing prices, while its four-year average dividend yield is 1.50%.
Its dividend payouts have grown at CAGRs of 16.5% and 16.1% over the past three and five years, respectively. Also, CRAI has a record of seven years of consecutive dividend growth.
The stock’s trailing-12-month levered FCF margin of 12.65% is 111.4% higher than the 5.98% industry average. Its trailing-12-month cash per share of $3.96 is 87.6% higher than the industry average of $2.11. Furthermore, CRAI’s trailing-12-month asset turnover ratio of 1.11x is 38.5% higher than the 0.82x industry average.
CRAI’s revenues for the fiscal third quarter (ended September 30, 2023) amounted to $147.55 million. During the same quarter, the company’s non-GAAP net income came in at $8.02 million and $1.13 per share, respectively. Moreover, its total liabilities stood at $331.09 million, declining 2.6% compared to $339.76 million as of December 31, 2022.
Analysts expect CRAI’s revenue for the fiscal fourth quarter (ended December 2023) to Increase 3.2% year-over-year to $149.67 million, while its EPS for the same period is expected to come in at $1.10. Furthermore, its EPS is projected to improve by 10% annually over the next five years.
Additionally, CRAI’s revenue and EBIT grew at CAGRs of 7.4% and 12% over the past three years, respectively. While its levered FCF has increased at a CAGR of 29.4% within the same time frame.
CRAI’s shares gained 3.9% over the past month to close the last trading session at $101.82.
It’s no surprise that CRAI has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Value, Stability, and Quality. Out of five stocks in the A-rated Outsourcing - Management Services industry, it is ranked #4.
In addition to the POWR Ratings we’ve stated above, we also have CRAI’s ratings for Growth, Momentum, and Sentiment. Get all CRAI ratings 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.
LAUR shares were trading at $12.52 per share on Thursday afternoon, down $0.10 (-0.79%). Year-to-date, LAUR has declined -8.68%, versus a -0.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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