Recurring Revenue Business Model Aids BR Amid High Competition

Broadridge Financial Solutions Inc. BR stock has gained 20.6% in the past year, outperforming the industry and the Zacks S&P 500 composite’s 19% and 11.6% growth, respectively.

BR reported mixed third-quarter fiscal 2025 results. Adjusted earnings of $2.44 per share beat the consensus mark by 2.1% and increased 9.4% from the year-ago quarter. Total revenues of $1.81 billion missed the consensus mark by 2.5% but rose 5% year over year.

How is Broadridge Financial Solutions Faring?

Broadridge Financial Solutions maintains a robust business model with substantial recurring revenue streams, offering strong visibility into its organic revenues in the near to mid-term. Most of the income comes from recurring fees, which encompass net new business, internal expansion and benefits from acquisitions. In fiscal 2024, approximately 65% of the top line was generated by recurring revenues despite ongoing economic uncertainty.

BR is consistent in its dividend payments, attracting dividend-seeking investors. In 2022, the company paid out $290.7 million in dividends, which then increased to $331 million and $368.2 million in 2023 and 2024, respectively. This consistency demonstrates the company’s commitment to return value to shareholders, making it a must-have stock. We do anticipate steady income growth, which will translate to steady cash flow, facilitating BR to pay out stable dividends.

The liquidity position of the company should generate interest among investors, reassuring them of its financial stability. In the third quarter of fiscal 2025, BR’s current ratio was 1.32, which is lower than the industry average of 1.52. Despite this situation, investors should remain confident in the company’s ability to effectively pay off short-term obligations, as the metric exceeds 1.

Setting aside these positive factors, we must delve into the negative aspects to present a clear picture of the company’s overall position. In terms of competition, DST Systems poses a serious threat to Broadridge Financial Solutions. Apart from this, the company is pretty much in a tug-of-war across its segments. This intense pressure piling onto the company from every direction makes it tough for BR to retain or increase its market share and puts a squeeze on profitability.

BR’s lack of industry diversification should be watched closely. The company is heavily exposed to the securities industry, including brokerage houses and asset managers. This industry can certainly take a massive hit if there is a material downturn in the market, affecting BR’s business.

Zacks Rank & Stocks to Consider

BR has a Zacks Rank #3 (Hold) at present.

Some better-ranked stocks from the broader Zacks Business Services sector are Cintas CTAS and Duolingo DUOL, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cintas has a long-term earnings growth expectation of 13.2%. CTAS delivered a trailing four-quarter earnings surprise of 7.6%, on average.

Duolingo has a long-term earnings growth expectation of 44.9%. DUOL delivered a trailing four-quarter earnings surprise of 22.8%, on average.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research