Broadridge: More High Single-Digit Earnings Growth Ahead

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Broadridge Financial Solutions has a strong history of profitable growth, robust markets, and resources for continued organic and acquisition-driven expansion, supporting a Buy rating.With a one-year ...

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Fly View Productions/E+ via Getty Images  Investment thesis Financial services company Broadridge Financial Solutions, Inc. (NYSE:BR) has a history of driving higher share prices over the past 10 years. In the past year, it is up 26.57%: BR 1-year price chart (Seeking Alpha) I believe those prices will continue to rise, by around 10% per year for more quarters and years. Its markets are robust, it has a history of profitable growth, and it has the resources it needs to continue growing organically and through acquisitions. I have a one-year price target of $247.53, an increase of 9.91% over the November 8 closing price, and a Buy rating. About Broadridge  The company describes itself this way in its Q1-fiscal 2025 earnings report: “Broadridge Financial Solutions (BR), a global Fintech leader with over $6 billion in revenues, provides the critical infrastructure that powers investing, corporate governance and communications to enable better financial lives. We deliver technology-driven solutions to banks, broker-dealers, asset and wealth managers and public companies. Broadridge's infrastructure serves as a global communications hub enabling corporate governance by linking thousands of public companies and mutual funds to tens of millions of individual and institutional investors around the world.” It added that its technology and operations platforms process, on an average day, more than U.S. $10 trillion in equities, fixed income, and other securities. It operates through two reporting segments: Investor Communication Solutions, and Global Technology and Solutions. Investor Communication includes several sub-segments: Regulatory Solutions, Data-Driven Fund Solutions, Corporate Issuer Solutions, and Customer Communications Solutions. This segment provided 75% of Broadridge’s revenue in fiscal 2024 (which ended on June 30, 2024). Global Technology and Operations is involved in transactions involving securities and financial market instruments. It helps facilitate the buying and selling involved in market transactions and provides record-keeping and reporting services. Although most of Broadridge’s work is in the financials sector, it is classified as an Industrials sector stock. At the close on November 8, its share traded at $225.21, and it had a market cap of $25.85 billion. Competition and competitive advantages Broadridge reported in the 10-K for fiscal 2024 that its industry is highly competitive. More specifically, it faces competition from many firms in each of its markets. While it does not list competitors, Seeking Alpha provides the names of five peers, two of which appear to be direct competitors. They are SS&C Technologies Holdings, Inc. (SSNC) and Genpact Limited (G). Three other offer similar services but not in the same areas as Broadridge: ExlService Holdings, Inc. (EXLS), Teleperformance SE (OTCPK:TLPFF), and Maximus, Inc. (MMS). All these firms are listed as Data Processing & Outsourced Services. Broadridge has the highest market capitalization at $25.65 billion, while SS&C has a cap of $18.37 billion. The others have market caps below $7.5 billion. Does size give it an edge with margins? As this chart shows, Broadridge (orange line) is in the middle of the pack when compared with the five peers: BR net margins chart (Seeking Alpha) At the end of Q1-2025 (ended September 30), the firm’s net income margin was 10.57%, over four points higher than the Industrials median of 6.43% (the net margin for the Financials sector is 21.89%). Based on this margin and the firm’s scale, I believe Broadridge has at least a narrow moat. Latest earnings report Broadridge’s first-quarter fiscal 2025 earnings release came out on November 5, and beat earnings’ estimates by $0.03 and missed on revenue by $60.78 million. The highlights of the release were summarized in this slide from the Q1 earnings presentation:   BR Q1-2025 earnings summary slide (company presentation) In the Q1 earnings call, CEO Tim Gokey explained this quarter is “our seasonally smallest quarter and is more impacted by the mix of companies hosting their annual meetings, which this quarter included fewer large cap growth companies.” Given this information, I believe we can expect the company to make up for these slippages over the full fiscal year. Overall, he observed, “global financial markets remain robust and the demand for what we do remains healthy, driven by long-term trends, including the democratization of investing, digitization of communications, acceleration of trading, growing importance of AI and the data that powers it and ever present regulatory change. At the same time, uncertainty remains high given the U.S. Election and other geopolitical events.” In context, this quarter’s slippage in EBITDA and net income run counter to the long-term trend: BR revenue EBITDA net income chart (Seeking Alpha) With the company predicting adjusted EPS growth of 8% to 12% for fiscal 2025, it obviously expects an upturn in succeeding quarters. So, it should be safe to expect net income and EBITDA will rise again on the charts. Dividends Based on the November 8 closing price of $225.21, the dividend yield is currently 1.59%. The current annual cash payout is $3.52, and it has a payout ratio of 42.88%. Broadridge has a strong history of increasing its dividend payments, as shown in this annual chart: BR dividend growth chart (Seeking Alpha) It has now increased the dividend every year for the past 16 consecutive years. While the dividend yield is not high, it makes a material difference for long-term investors, especially those who reinvest them and harvest compounding returns. Broadridge growth outlook In its guidance for fiscal 2025, the company expects recurring revenue to increase 6% to 8%, an increase from its previous outlook. Closed sales are expected to stay at the previously forecast level. The adjusted operating income margin, on a non-GAAP basis, is expected to remain about the same, around 20%. And, adjusted EPS growth, non-GAAP, is not expected to change, at 8% to 12%. Investors should be encouraged that adjusted EPS growth is expected to outpace revenue growth, because it indicates more productivity in company operations. Analysts expect that differential to continue through this year and the next four years. First, here are their estimates for year-over-year revenue growth: BR revenue chart (Seeking Alpha) They project mostly middle single-digit growth forecasts for revenue. Compare those year-over-year numbers with those in the analysts’ earnings estimates: BR EPS estimates table (Seeking Alpha) Can the company continue to grow and grow profitably? Yes, its end markets are robust, and it has the resources it needs to push up organic and acquisition growth. Regarding, the latter, the company announced November 1 that it had completed its acquisition of Kyndryl’s Securities Industry Services in a $185 million deal. It’s part of a growing pipeline of new business. And as the divergence between revenue and earnings indicates, it is also becoming more productive. Valuation The following 10-year chart, which shows price growth of nearly 400%, adds to our confidence in its ability to keep growing over the long-term: BR 10-year price chart (Seeking Alpha) From a valuation perspective, this sort of growth suggests Broadridge will be expensive. And, according to the Seeking Alpha valuation table, it is, with a D+ grade overall. Yet, capital gains should be available for investors who buy growth stocks. As the company and analyst forecasts indicate, EPS will rise by high single-digits in coming years. To set a one-year price target, I will take one quarter of 2024’s percentage growth and three quarters of 2025’s percentage growth. They average out to 9.91%, and adding that amount to the November 8 closing price of $225.21 creates a target of $247.53. The following chart shows share prices have followed earnings through most of the past decade, suggesting EPS growth is a relatively good predictor of share prices: BR EPS price chart (Seeking Alpha) My target is significantly higher than the average of the eight Wall Street analysts. They have an average, one-year price target of $220.26, which is 2.20% below the current price. However, my target is nearly the same as the analysts’ high target of $246.00. Based on the company’s relatively steady growth over the past decade, its financial strength, and a price target that’s nearly 10% higher than the current price, I rate Broadridge a Buy. There has been one other Seeking Alpha analyst rating in the past 90 days, a Hold. The Quant system also gives it a Hold, but it had a Buy rating until November 6. Of the eight Wall Street analysts, two had a Buy, six had Holds, and one had a Sell, for a collective Hold rating. Risk factors As a company that works with the financial industry, it will have a heightened risk of cyber-attacks and cybercrime. Any ‘successful’ intrusion could lead to reputational and financial damages. Financial firms face an extensive array of regulations and rules. Compliance is expensive and any failure to comply might lead to fines or other penalties that would harm its earnings. My assumptions, as well as those of the company and analysts may prove to be wrong, and growth may be less than expected or even negative. In turn, that could mean share prices will not meet my price target. Just over 93% of its shares are owned by institutional investors and only 6.41% are owned by public shareholders. Therefore, public shareholders may have little influence on board room decisions. Conclusion After a stock has posted a series of gains, investors can have one of two opinions. First, the stock has risen a lot and it may not go any higher, or they can assume the company’s earnings will continue to grow and with the higher earnings will come higher share prices.  I believe the latter case best describes Broadridge Financial Solutions, based on the data and information available. Its end markets are strong, it is becoming increasingly productive, and it has a history of growing its bottom line and share price","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2482256538"}