Financial technology company Broadridge Financial Solutions, Inc. (BR) in Lake Success, N.Y. offers investor communications and technology solutions to broker-dealers, banks, mutual funds, and corporate issuers. As a global fintech leader, the company has achieved strong position growth across equities and funds. Its recurring revenue has risen 19%, driven by revenue from closed sales and the successful acquisition of the electronic trading platform Itivit.

However, BR’s shares have retreated 13.9% in price over the past month and 17.7% over the past three months. For 2022, the company is projecting an adjusted operating income margin of 18.5%, which is lower than its prior FY22 guidance of 19%.

And although strategic acquisitions to help expand its footprint could allow BR to deliver steady and consistent earnings growth, a higher average outstanding debt could negatively impact its profitability. Closing its last session at $144.62, the stock is trading 22% below its 52-week high of $185.40.

Here is what could influence BR’s performance in the coming months:

Strategic Collaboration

Last month, BR announced the availability of a new Spanish issuer “golden copy” event notification and vote execution service, in association with Santander Investment S.A., the leading Shareholder General Meeting services company in Spain. The service will offer a fully automated solution with market-wide coverage and expand voting windows in Spain. Also, BR recently announced its expanded coverage for proxy processing and extended voting windows for more markets in 2022 and 2023. 

Stretched Valuation

In terms of non-GAAP forward PEG, the stock is currently trading at 2.41x, which is 57.7% higher than the 1.53x industry average. Also, its 9.66x trailing-12-month Price/Book multiple is 144.2% higher than the 3.96x industry average. And BR’s 36.54 trailing-12-month Price/Cash Flow ratio compares with the 21.28 industry average.

Favorable Analyst Estimates

Analysts expect BR’s revenues to increase 10.1% in the next quarter (ending June 2022), 13.9% in 2022, and 5.5% next year. The company’s EPS is expected to rise 13.6% year-over-year to $6.43 in the current year and 9.6% from its year-ago value to $7.05 in 2023. Furthermore, the Street expects BR’s EPS to increase at 11.8% over the next five years.

Mixed Financials

BR’s revenue increased 19% year-over-year to $1.26 billion in the second quarter, ended Dec. 31, 2021. The company recorded closed sales of $83 million, up 87% from the prior-year period. However, its operating income came in at $69 million, compared to $79 million in the second quarter of 2021. BR’s interest expenses rose $10 million due to higher average debt outstanding. And as of December 31, 2021, its long-term debt totaled $4.16 billion.

Its 28% trailing-12-month gross profit margin is 43.6% lower than the 43.6% industry average.

POWR Ratings Reflect Uncertainty

BR has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. BR has a C grade for Quality. The stock’s mixed profitability is in sync with this grade.

Furthermore, the company has a Momentum grade of D, which is consistent with its price returns over the past month.

In terms of Value Grade, BR has a C. This is in sync with its higher-than-industry valuation multiples.

In addition to the grades I have highlighted, one can check out additional BR ratings for Stability, Sentiment, and Growth here. BR is ranked #68 of 115 stocks in the D-rated Financial – Services (Enterprise) industry.

Bottom Line

Surging event-driven and recurring fee revenues due to increased growth from acquisitions and mutual fund communications have benefited the leading fintech company. However, BR’s significant long-term debt outstanding, coupled with a weak profit margin, has added uncertainties to its prospects. Therefore, we think investors should wait for its profitability to improve before investing in the stock.

How Does Broadridge Financial Solutions (BR) Stack Up Against its Peers?

While BR has an overall C (Neutral) rating in our proprietary rating system, one might want to check out its industry peers with A (Strong Buy) ratings: Forrester Research, Inc. (FORR), Donnelley Financial Solutions, Inc. (DFIN), and CPI Card Group Inc. (PMTS).

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