Digitizing Investing Will Transform Wealth Management And Capital Markets

Key Takeaways

• Broadridge's strategy to digitize and democratize investing, alongside innovations in trading and wealth management, is set to sustain strong revenue growth.
  
• Organizational efficiency and a robust digital solutions pipeline position Broadridge for earnings growth while maintaining strong margins.
  
• Market uncertainties and operational adjustments could impact Broadridge's revenue growth, despite a strong backlog, with currency fluctuations also contributing to volatility.

Catalysts

Provides investor communications and technology-driven solutions for the financial services industry.

• Broadridge's growth strategy to digitize and democratize investing is expected to drive revenue growth through innovations in trading simplification and modernizing wealth management, as evidenced by its strong recurring revenue growth.
  
• The increase in smaller investor positions due to trends like direct indexing is projected to provide a foundation for future revenue growth, as these accounts potentially grow to larger revenue-generating sizes over time.
  
• The company's robust pipeline for digital solutions and capital markets platforms positions it well for future earnings growth, with significant interest already noted in these areas as Broadridge progresses with late-stage business negotiations.
  
• Investments in modular wealth management platforms are anticipated to enhance revenue growth and provide transformative options for clients, as seen with the successful onboarding of multiple wealth management components and a recent significant client sale.
  
• Organizational efficiency, driven by strong operating leverage and prudent management of the expense base, including strategic facility closures and restructuring, positions Broadridge to maintain strong net margins while funding growth investments.

Broadridge Financial Solutions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Broadridge Financial Solutions's revenue will grow by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.7% today to 14.1% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $9.85) by about May 2028, up from $788.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.9x on those 2028 earnings, down from 34.8x today. This future PE is greater than the current PE for the US Professional Services industry at 21.2x.
• Analysts expect the number of shares outstanding to decline by 0.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.65%, as per the Simply Wall St company report.

Broadridge Financial Solutions Future Earnings Per Share Growth

Risks

• The delay in the sales closing process due to market uncertainty and client hesitation could affect Broadridge's near-term revenue recognition and future revenue growth, despite a strong existing backlog.
  
• Investment client cautiousness related to new initiatives could slow down the company's sales momentum, influencing the timing of revenue streams and potentially affecting short-term revenue growth targets.
  
• The impact of smaller fractional equity positions not immediately translating into revenue poses a risk to Broadridge's top-line growth, as the conversion of these positions to revenue-generating sizes may be uncertain and delayed.
  
• Currency fluctuations, particularly between the Canadian and US dollars, have already created headwinds that impacted Broadridge's reported recurring revenue growth and could continue to cause volatility in revenue recognition.
  
• The restructuring charge related to the closure of a print operation indicates operational adjustments which, while intended to optimize costs, could temporarily impact net margins and earnings.

Valuation

• The analysts have a consensus price target of $250.259 for Broadridge Financial Solutions based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $300.0, and the most bearish reporting a price target of just $220.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.0 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 30.9x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $233.57, the analyst price target of $250.26 is 6.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.