The Consumer Price Index (CPI) for October increased 0.4% sequentially and 7.7% year-over-year, coming in lower than estimates. Despite showing signs of cooling down, inflation remains uncomfortably high. Therefore, the Fed is expected to continue hiking interest rates.
The expected continuation of monetary policy tightening spells trouble for borrowers as borrowing is set to become expensive. However, financial companies will benefit from the rising interest rates as it helps them expand their revenues.
Financial service providers have benefitted from digital transformation over the past few years. The global financial services market is expected to grow at a 9.6% CAGR to $37.35 trillion by 2026.
With the Fed Chairman cautioning that the final level of interest rates will be higher than expected, it could be wise to avoid fundamentally weak financial services stocks SoFi Technologies, Inc. (SOFI) and Exela Technologies, Inc. (XELA). However, the resilience of Forrester Research, Inc.’s (FORR) business to the macroeconomic challenges makes it a solid buy.
Stock to Buy:
Forrester Research, Inc. (FORR)
FORR operates as an independent research and advisory services company. The company operates in three segments: Research, Consulting, and Events. It sells its products and services through a direct sales force in various locations worldwide.
On May 19, 2022, FORR joined the Work Without Limits Business Network to foster greater employment opportunities for candidates with disabilities. As part of its diversity and inclusion journey, FORR’s recruitment priorities focus on attracting talent from all backgrounds and perspectives.
VP of talent acquisition at FORR, Julie Kelly, said, “We look forward to collaborating with Work Without Limits to maximize employment opportunities for people with disabilities and play our part in addressing the barriers keeping them from finding work.”
For the fiscal third quarter ended September 30, 2022, FORR’s total revenues increased 8.1% year-over-year to $127.68 million. The company’s adjusted income from operations increased 24.5% from the prior-year period to $15.81 million. Its adjusted net income increased 38% year-over-year to $10.90 million. In addition, its adjusted EPS came in at $0.57, representing a 39% increase from the year-ago quarter.
FORR’s revenue for the quarter ending December 31, 2022, is expected to increase 3.7% year-over-year to $138.71 million. Its EPS for the quarter ending March 31, 2023, is expected to increase 4.4% year-over-year to $0.47. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past five days, the stock has gained 1.4% to close the last trading session at $35.33.
FORR’s POWR Ratings reflect solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Financial Services (Enterprise) industry, it is ranked first out of 105 stocks. The company has an A grade for Quality and a B for Value and Sentiment.
Click here to see the additional POWR Ratings of FORR for Growth, Momentum, and Stability.
Stocks to Sell:
SoFi Technologies, Inc. (SOFI)
SOFI provides digital financial services and products that allow its members to borrow, save, spend, invest, and protect their money. It operates through three segments: Lending, Technology Platform, and Financial Services.
For the fiscal third quarter ended September 30, 2022, SOFI’s total liabilities increased 130.7% to $10.33 billion, compared to $4.48 billion as of December 31, 2021. Its net loss widened 147% year-over-year to $74.21 million. Additionally, its loss per share widened 80% year-over-year to $0.09. Also, its non-interest expense increased 65.1% year-over-year to $498.43 million.
SOFI’s EPS for the quarter ending December 31, 2022, is expected to remain negative. The stock has fallen 69.2% year-to-date to close the last trading session at $4.87.
SOFI’s POWR Ratings are consistent with its weak fundamentals. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. It is ranked #102 in the same industry. It has an F grade for Stability and Quality and a D for Value and Momentum.
To see the additional ratings of SOFI for Growth and Sentiment, click here.
Exela Technologies, Inc. (XELA)
XELA provides worldwide transaction processing solutions, enterprise information management, document management, and digital business process services. The company operates through three segments: Information & Transaction Processing Solutions (ITPS), Healthcare Solutions (HS), and Legal & Loss Prevention Services (LLPS).
XELA’s revenue for the third quarter ended September 30, 2022, declined 5.4% year-over-year to $264.04 million. The company’s net loss attributable to common stockholders widened 522.2% year-over-year to $87.33 million. Its adjusted EBITDA declined 4.6% year-over-year to $31.80 million. Its loss per share narrowed 25.8% year-over-year to $1.38.
Analysts expect XELA’s EPS for the quarter ending December 31, 2022, to remain negative. Its revenue for fiscal 2022 is expected to decline 2.9% year-over-year to $1.13 billion. The stock has fallen 98.9% year-to-date to close the last trading session at $0.19.
XELA’s bleak prospects are reflected in its POWR Ratings. The company has an overall rating of D, which equates to a Sell in our proprietary rating system. It is ranked #80 stocks in the Financial Services (Enterprise) industry. In addition, it has an F grade for Sentiment and a D for Growth, Momentum, and Stability.
In total, we rate XELA on eight different levels. Beyond what we stated above, we have also given XELA grades for Value and Quality. Get all XELA ratings here.
Want More Great Investing Ideas?
REVISED: 2023 Stock Market Outlook (includes top 7 picks)
FORR shares were trading at $35.51 per share on Tuesday afternoon, up $0.18 (+0.51%). Year-to-date, FORR has declined -39.54%, versus a -14.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|FORR||Get Rating||Get Rating||Get Rating|
|SOFI||Get Rating||Get Rating||Get Rating|
|XELA||Get Rating||Get Rating||Get Rating|