The outsourcing industry is poised for significant growth as a result of cost-cutting and operational streamlining trends, as well as technological advancements that make outsourcing easier. Therefore, it could be wise to own fundamentally strong outsourcing stocks Wipro Limited (WIT), TriNet Group, Inc. (TNET) and Strategic Education, Inc. (STRA).
The outsourcing industry is experiencing an increase in demand as a result of technical improvements and remote work. Business Process Outsourcing (BPO) is expanding due to its flexibility, cost savings, and higher service quality. IT outsourcing is also growing increasingly popular, with varied functions such as programming and technical support.
Cybersecurity is becoming more critical as public awareness grows and threats evolve. Emerging technology developments such as IoT, AI, cloud computing, and machine learning are transforming the outsourcing industry, increasing operational efficiency and competitiveness.
The global business process outsourcing market is expected to grow at a CAGR of 7.1% until 2029. The focus of organizations on agility, efficiency, productivity, reduced time to market, and cost reduction drives the business process outsourcing industry. Also, growth is accelerated by SaaS-based solutions and process automation.
The IT outsourcing industry is predicted to expand to $171.5 billion by 2028, with a CAGR of 7.4%. Remote work, virtualization, data privacy, AI integration, agile development, customer experience, increased demand, cost savings, complexity, digital transformation, cloud computing, and cybersecurity will all contribute to growth during this period.
Considering these conducive trends, let’s take a look at the fundamentals these stocks.
Wipro Limited (WIT)
Based in Bengaluru, India, WIT is a global information technology, consulting, and business process services company. It operates through three segments: IT Services, IT Products, and India State Run Enterprise Services (ISRE). The company also provides cybersecurity consulting services.
WIT’s trailing-12-month ROTA of 10.03% is significantly higher than the industry average of 0.81%. Its trailing-12-month net income margin of 12.44% is 388.9% higher than the industry average of 2.26%.
For nine months ended December 31, 2023, WIT’s revenues rose 0.4% year-over-year to ₹675.52 billion ($8.12 billion). The company’s gross profit increased 5.8% over the prior-year period to ₹201.24 billion ($2.42 billion). Its results from operating activities stood at ₹100.73 billion ($1.21 billion). In addition, its profit for the period came in at ₹82.54 billion ($992.95 million). Also, its EPS came in at ₹15.42, representing an increase of 2.3% year-over-year.
Analysts expect WIT’s revenue to come in at $10.82 billion for the year ending March 2024. Its EPS is expected to grow marginally year-over-year to $0.25 for the same period. The stock has gained 38% over the past nine months to close the last trading session at $6.43.
WIT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
WT has a B grade for Stability and Quality. Within the A-rated Outsourcing - Tech Services industry, it is ranked #5 out of 9 stocks. To see additional POWR Ratings for Growth, Sentiment, Value and Momentum for WIT, click here.
TriNet Group, Inc. (TNET)
TNET provides comprehensive and flexible human capital management services for small and medium size businesses in the United States.
TNET’s trailing-12-month ROCE of 87.92% is 613.9% higher than the 12.32% industry average. Its trailing-12-month ROTC of 23.90% is 248.7% higher than the 6.85% industry average.
TNET’s total revenues for the fiscal fourth quarter ended December 31, 2023, increased marginally year-over-year to $1.25 billion. Its adjusted EBITDA increased 26.1% over the prior year quarter to $140 million. The company’s net income increased 36.7% year-over-year to $67 million. Also, its EPS came in at $1.31, representing an increase of 67.9% year-over-year.
TNET’s revenue is expected to come in at $1.31 billion for the year ending December 2024. Its EPS is expected to come $6.67 for the same period. Over the past nine months, the stock has gained 40% to close the last trading session at $127.18.
It’s no surprise that TNET has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Value and Stability. It is ranked #7 out of 42 stocks in the B-rated Outsourcing - Business Services industry.
Beyond what is stated above, we’ve also rated TNET for Growth, Sentiment, Momentum and Quality. Get all TNET ratings here.
Strategic Education, Inc. (STRA)
STRA through its subsidiaries, provides education services through campus-based and online post-secondary education, and programs to develop job-ready skills. It operates through three segments: U.S. Higher Education, Australia/New Zealand, and Education Technology Services.
STRA’s trailing-12-month gross profit margin of 43.43% is 22.2% higher than the industry average of 35.55%. Its trailing-12-month levered FCF margin of 6.25% is 8.9% higher than the industry average of 5.74%.
For the third quarter that ended September 30, 2023, STRA reported revenues of $285.94 million, up 8.7% year-over-year. The company’s income from operations increased 228.3% year-over-year to $25.63 million. Its net earnings came in at $23.26 million, up 191.6% from the prior year’s quarter. Also, non-GAAP EPS rose 193.9% from the year-ago value to $0.97.
Street expects STRA’s revenue to come in at $1.19 billion for the year ending December 2024, up 5.3% year-over-year. Its EPS is expected to grow 27.1% year-over-year to $4.29 for the same period. It is expected to surpass EPS in three of four trailing quarters. Shares of STRA have gained 31.5% over the past six months to close the last trading session at $95.35.
STRA has an overall B rating, equating to a Buy in our POWR Ratings system.
STRA’s is ranked #11 out of 21 stocks in the A- rated Outsourcing - Education Services industry. It has a B grade for Growth, Stability and Sentiment. To see additional STRA’s ratings for Value, Momentum and Quality, click here.
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WIT shares were trading at $6.37 per share on Tuesday afternoon, down $0.06 (-0.93%). Year-to-date, WIT has gained 14.58%, versus a 4.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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