Here are 3 Outsourcing Stocks to Consider Amid Industry Woes
About the Industry
Outsourcing involves delegating a company's internal operations to external resources or third-party contractors to enhance operational efficiency. Within the Zacks Outsourcing sector, one can find companies that provide human capital, business management and IT solutions, primarily catering to small and medium-sized enterprises. These services encompass a broad spectrum, including HR support, payroll management, administration of benefits, retirement planning and insurance services. Certain firms excel in delivering business process services, with a strong focus on transaction processing, analytics and global automation solutions. This outsourcing approach empowers businesses to concentrate on their core competencies while external experts manage these critical functions.
What's Shaping the Future of the Outsourcing Industry?
The business process outsourcing (BPO) services experience higher demand due to greater flexibility, lower costs and enhanced service quality. The IT outsourcing market is also in robust shape. In the future, outsourced IT services will cover a wide array of functions, including programming and technical support. Companies can outsource entire IT departments to cut costs and focus on core operations. The shortage of in-house engineering talent will drive the outsourcing trend.
The demand for robust data encryption and cybersecurity measures is rising on the back of increased public awareness and evolving cyber threats, such as ransomware and national-level cyberattacks. To mitigate cybersecurity threats, companies are focusing on employee security awareness training and breach detection systems. Businesses are increasingly turning to outsourced cybersecurity services to lower risks, maintain compliance and support scalability in their operations.
Trends like the Internet of Things (IoT), cloud computing, Artificial Intelligence (AI) and Machine Learning (ML) are gradually transforming the outsourcing sector. These innovations improve efficiency, lead to innovations and increase competitiveness, changing the outsourcing landscape for businesses to streamline operations. For instance, IoT data can be collected, processed and analyzed in the cloud, enabling real-time decision-making and predictive maintenance for clients. By integrating AI and ML into customer support outsourcing, companies can provide swifter, effective and consistent customer support while optimizing operational costs.
Zacks Industry Rank Indicates Dull Near-Term Prospects
The Zacks Outsourcing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #196. This rank places it in the bottom 20% of 246 Zacks industries.
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates continued underperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperformthe bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry's recent stock market performance and current valuation.
Industry Underperforms Sector & S&P 500
Over the past year, the Zacks Outsourcing industry underperformed the broader Zacks Business Services sector and the Zacks S&P 500 composite.
The industry has declined 6.9% over this period against the broader sector and the Zacks S&P 500 composite's 16.6% and 13.8% growth, respectively.
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), commonly used for valuing outsourcing stocks, the industry is currently trading at 15.96X compared with the S&P 500's 22.75X and the sector's 22.38.
In the past five years, the industry has traded as high as 19.71X and as low as 15.07X, with the median being 16.01X, as the charts below show.
3 Outsourcing Stocks Worth a Look
Barrett Business Services: This company provides payroll administration, health benefits, staffing and recruiting, and a range of additional services. New client sales, coupled with the upselling of new products and great client retention, are driving BBSI's top line. The company is enjoying success from entering markets with its asset-light model in terms of adding more worksite employees.
The company is active on the technology front as well. Barrett Business Services' investment in myBBSI to aid BBSI Benefits is improving client service and support. The BBSI Application Tracking System, launched in March, is receiving positive feedback from clients as well. Overall, the company's investments in technology are reaping benefits and are expected to do so in the long run.
The Zacks Consensus Estimate for the company's fiscal 2025 EPS of $2.11 has been flat over the past 30 days. BBSI shares have gained 7.2% over the past three months.
Barrett Business Services carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Brink: This is a leading global provider of cash and valuables management, digital retail solutions, and ATM managed services. Growth across all the segments is fueling the top line. Digital Retail Solutions is growing across North America on the back of new installations in auto parts stores and restaurants, while in Latin America, installations in wholesale and C-store markets in Mexico are the driving factors.
The company anticipates ATM Managed Services to accelerate in the second half of 2025 due to deployments and pipeline growth. BCO's Global Services Business is growing as long-term customer relationships and global networks are strengthening.
The Zacks Consensus Estimate for the company's fiscal 2025 EPS of $7.35 has been flat over the past 30 days.Shares of Brink have gained 7.5% over the past three months.
BCO carries a Zacks Rank #3 at present.
Capgemini:This multinational IT services and consulting company is benefiting from a good momentum in financial services and the public sector. The company is experiencing strong growth across the U.K., Ireland, the Asia Pacific and Latin America. On the AI front, CGEMY is witnessing consistent traction with robust client demand. Gen AI is a huge driving factor behind the company's progress in the AI domain. Apart from that, Agentic AI is fueling operational efficiency and value creation.
Capgemini is benefiting from investments in key assets. The company has launched a platform to create, integrate and monitor trusted AI agents within its Agentic AI gallery. This helps the company deploy AI for clients while ensuring security and privacy are maintained at the highest levels.
The Zacks Consensus Estimate for the company's 2025 EPS has been revised marginally upward to $2.58 over the past 30 days. Shares of Capgemini have gained 9% over the past three months.
CGEMY has a Zacks Rank #3 at present.
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Barrett Business Services, Inc. (BBSI) : Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).
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