Digital Transformation And Strategic Acquisitions Propel Sustained Growth Momentum

Key Takeaways

• Broadridge's strategic acquisitions and digital innovations enhance growth in wealth management and client engagement, boosting future revenue.
  
• A strong sales pipeline and reinvestment strategy provide confidence in sustained growth and potential EPS increases.
  
• Market uncertainty, revenue decline in segments, and challenges with acquisitions and digital transitions could hinder Broadridge's earnings and margin stability.

Catalysts

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

• Broadridge's acquisition of SIS is expected to enhance growth in their Canadian business and improve wealth management innovation, likely positively impacting future revenue.
  
• Increasing demand for Broadridge's innovative governance and communications solutions, driven by regulatory change and digital transformation, is expected to sustain revenue growth.
  
• The successful integration and execution of their digital platforms, like Wealth InFocus, promise to boost client engagement and operational efficiency, potentially enhancing net margins.
  
• A robust sales pipeline and strong recurring sales provide visibility and confidence in sustained revenue and earnings growth going forward.
  
• Strategic reinvestment of earnings from high-margin activities is aimed at capturing further growth opportunities, potentially leading to incremental EPS growth.

Broadridge Financial Solutions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Broadridge Financial Solutions's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.6% today to 13.6% in 3 years time.
• Analysts expect earnings to reach $1.0 billion (and earnings per share of $9.11) by about November 2027, up from $687.0 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 29.2x on those 2027 earnings, down from 39.0x today. This future PE is greater than the current PE for the US Professional Services industry at 26.9x.
• Analysts expect the number of shares outstanding to decline by 0.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.51%, as per the Simply Wall St company report.

Broadridge Financial Solutions Future Earnings Per Share Growth

Risks

• The deconversion of E-Trade has resulted in a recurring revenue decline of 4% in the wealth and investment management segment, which may impact future earnings if not offset by other growth areas.
  
• Uncertainty in the market due to geopolitical events and U.S. elections could lead to volatility, possibly affecting trading volumes and negatively influencing revenue.
  
• Lower event-driven revenues, as seen this quarter, have reduced adjusted operating income, and while Broadridge expects high-margin event activity to create investment capacity, any sustained reduction could affect net margins.
  
• Challenges in integrating and realizing value from recent acquisitions, such as SIS, which is expected to dilute margins slightly in the first year, may impact earnings growth if synergies are slower to materialize.
  
• The decline in customer communication print volumes, affected by a shift toward digital communications, introduces execution risk in achieving steady revenue growth if digital uptake doesn't meet expectations.

Valuation

• The analysts have a consensus price target of $220.26 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 $246.0, and the most bearish reporting a price target of just $205.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $7.7 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 29.2x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of $229.01, the analyst's price target of $220.26 is 4.0% lower. 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.