Amid the relentless pursuit for businesses to augment efficiency, curtail costs, address staffing deficits, and maintain agility in the fluctuating market landscape, the outsourcing sector is experiencing strong demand.
Given this backdrop, investors could embed resilience into their portfolio by investing in quality outsourcing stocks like Huron Consulting Group Inc. (HURN), Universal Technical Institute, Inc. (UTI), and GEE Group Inc. (JOB).
Outsourcing, which entails the strategic allocation of non-core tasks to external experts, provides businesses with the means to enhance productivity, facilitate corporate flexibility and harness specialized skills.
The escalating requirement for potent recruitment strategies coupled with the trend of consigning recruitment to external providers is set to catalyze progress in the Recruitment Process Outsourcing (RPO) market. The global RPO market is projected to expand at a CAGR of 16.1%, reaching $24.32 billion by 2030.
U.S. firms outsource around 300,000 jobs to developing nations to gain access to extensive talent resources while reducing costs. These firms leverage hybrid work structures and effectively use communication and project management tools, facilitating seamless digital transition.
The U.S. business process outsourcing market is projected to reach $139.32 billion, growing at a CAGR of 9.1% by 2030. The global BPO market is anticipated to reach $525.20 billion, growing at a 9.4% CAGR by 2030.
Moreover, educators delegate functions to specialized entities to enhance efficiency, tackle skill shortages, and minimize costs. There is also a mounting imperative to bridge skill gaps and offer high-quality training, further enhancing the potential of the learning services market. The global learning services outsourcing market is projected to grow at a CAGR of 8.4% and reach $30.70 billion by 2027.
With these favorable trends in mind, let's delve into the fundamentals of the three outsourcing stocks.
Huron Consulting Group Inc. (HURN)
HURN provides consultancy services in the U.S. and internationally. It operates through three segments: Healthcare; Education; and Commercial.
HURN’s trailing-12-month asset turnover ratio of 1.08x is 35.9% higher than the industry average of 0.79x. Its trailing-12-month ROCE, ROTC, and ROTA of 13.83%, 8.82%, and 5.98% are 13.1%, 28%, and 21% higher than the industry averages of 12.23%, 6.90%, and 4.94%, respectively.
The company returned $88.40 million to the shareholders in the nine months that ended September 30, 2023, by repurchasing 1.1 million shares of the company's common stock.
In the fiscal third quarter that ended September 30, 2023, HURN’s revenues and operating income increased 25.5% and 27.5% year-over-year to $358.18 million and $37.34 million, respectively. Moreover, its adjusted EBITDA stood at $48 million, up 31.6% from the year-ago quarter.
For the same quarter, adjusted net income and adjusted earnings per share increased 31% and 37.6% from the prior-year quarter to $27.17 million and $1.39, respectively.
The company increased guidance for fiscal year 2023 revenues before reimbursable expenses between $1.35 billion and $1.37 billion. It anticipates adjusted EBITDA as a percentage of revenues between 12% and 12.5% and non-GAAP adjusted EPS between $4.70 and $4.90.
Street expects HURN’s revenue and EPS for the fiscal fourth quarter ending December 2023 to increase 8.9% and 1.3% year-over-year to $341.71 million and $1.14, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 42.7% year-to-date to close the last trading session at $103.62. Over the past nine months, it has gained 32.9%.
HURN’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Sentiment. Within the A-rated Outsourcing – Management Services industry, it is ranked #4 out of 5 stocks.
To see HURN’s additional POWR Ratings for Growth, Value, Momentum, Stability, and Quality, click here.
Universal Technical Institute, Inc. (UTI)
UTI is a workforce solutions provider of transportation, skilled trades, and healthcare education programs. It operates through two segments: Universal Technical Institute (UTI) and Concorde Career Colleges (Concorde).
On December 5, UTI announced the consolidation of its Houston operations to align the curriculum, student-facing systems, and support services to better serve students seeking careers in in-demand fields.
As part of the transition, the MIAT-Houston campus, acquired in November 2021, will begin operating under the UTI brand and implement a phased teach-out agreement starting May 2024. This should bode well for UTI.
On October 23, UTI announced its additional program expansions of Heating Ventilation Air Conditioning and Refrigeration (HVACR) in Avondale, Ariz.; Bloomfield, N.J.; and two California locations, Long Beach and Sacramento, which are expected to launch in late fiscal 2024 and early fiscal 2025.
This follows the successful rollout of 13 new programs across eight campuses during its fiscal 2023 fourth quarter. In addition, UTI expects to launch its Airframe and Powerplant Technician program at the UTI-Miramar campus by the end of 2023 after completing the Federal Aviation Administration certification process.
UTI’s trailing-12-month CAPEX/Sales of 9.33% is 207.2% higher than the industry average of 3.04%, while trailing-12-month gross profit margin of 53.83% is 51.7% higher than the industry average of 35.47%.
In the fiscal fourth quarter that ended September 30, 2023, UTI’s revenues and income from operations increased 53.9% and 198.4% year-over-year to $170.30 million and $10.34 million, respectively. Moreover, its adjusted EBITDA stood at $19.17 million, up 27% from the year-ago quarter.
For the same quarter, adjusted net income and net income per share increased 5% and 233.3% from the prior-year quarter to $8.41 million and $0.10, respectively. As of September 30, 2023, total current assets stood at $204.99 million, compared to $135.95 million as of September 30, 2022.
Street expects UTI’s revenue and EPS for the fiscal first quarter ending December 2023 to increase 40.8% and 75% year-over-year to $169.02 million and $0.04, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 76.8% year-to-date to close the last trading session at $11.88. Over the past six months, it has gained 73.7%.
UTI’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
UTI has a B grade for Sentiment. Within the A-rated Outsourcing – Education Services industry, it is ranked #5 out of 20 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, Stability, and Quality. Get all ratings of UTI here.
GEE Group Inc. (JOB)
JOB provides permanent and temporary professional and industrial staffing and placement services in the U.S. The company operates through two segments: Industrial Staffing Services and Professional Staffing Services.
Maximizing shareholder value is paramount to JOB’s growth strategy. Its capital allocation strategy includes the $20 million share repurchase plan authorized by JOB’s board of directors to repurchase JOB common shares.
Since May, it has repurchased nearly 1.5 million shares, or just over 1%, of its outstanding shares. The company is also constantly looking for opportunities to augment internal growth with strategic acquisitions that are appropriately priced so that they are accretive to earnings.
JOB’s trailing-12-month asset turnover ratio of 1.32x is 66.5% higher than the industry average of 0.79x, while the trailing-12-month gross profit margin of 35.28% is 16.5% higher than the industry average of 30.28%.
In the fiscal third quarter that ended June 30, 2023, JOB’s net revenues and gross profit stood at $38.17 million and $13.65 million, respectively. Moreover, its adjusted EBITDA stood at $2.10 million.
For the same quarter, adjusted net income and earnings per share increased 156.9% and 250% from the prior-year quarter to $8.07 million and $0.07, respectively. As of June 30, 2023, its total current liabilities stood at $10.08 million, compared to $15.58 million as of September 30, 2022.
Street expects JOB’s revenue and EPS for the fiscal first quarter ending December 2023 to rise 5.9% and 200% year-over-year to $43.57 million and $0.03, respectively.
The stock has gained 10.8% year-to-date to close the last trading session at $0.54. Over the past nine months, it has gained 29.3%.
JOB’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
JOB has an A grade for Value and Sentiment and a B for Stability. It is ranked #2 out of 20 stocks within the A-rated Outsourcing – Staffing Services industry.
Click here for the additional POWR Ratings for JOB (Growth, Momentum, and Quality).
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HURN shares were unchanged in premarket trading Friday. Year-to-date, HURN has gained 42.73%, versus a 21.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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