Broadridge Financial (BR) Up 8.6% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Broadridge Financial Solutions (BR). Shares have added about 8.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Broadridge Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Broadridge Lags Q3 Earnings Estimates, Revenues Beat

Broadridge Financial Solutions reported mixed third-quarter fiscal 2020 results. While earnings missed the Zacks Consensus Estimate, revenues beat the same.

Adjusted earnings of $1.67 per share missed the consensus estimate by 4% but improved 5% year over year. Total revenues of $1.25 billion marginally beat the consensus mark and were up 2% year over year. The company generated closed sales of $44 million in the quarter, up 20% year over year.

Revenues by Segment

Revenues in the Investor Communication Solutions segment declined 3% from the year-ago quarter level to $980 million.

The segment’s recurring fee revenues were up 2% to $529 million driven by net new business and acquisitions. Internal growth was negatively impacted by a shift of proxy communications into the fourth quarter as a result of the coronavirus pandemic. Event-driven fee revenues plummeted 43% to $39 million on lower mutual fund proxy activity and equity proxy contests. Distribution revenues decreased 1% to $412 million on lower event-driven activity.

Global Technology and Operations segment recurring fee revenues came in at $305 million, up 23% year over year. This improvement was driven by acquisitions and organic growth. Higher trading volumes resulting from the pandemic-related market uncertainty benefited the segment’s internal growth.

Operating Results

Adjusted operating income of $262 million improved 3% year over year. Adjusted operating income margin increased to 21% from 20.9% in the prior-year quarter.

Balance Sheet and Cash Flow

Broadridge exited the fiscal third quarter with cash and cash equivalents of $4.2 million compared with the $234 million witnessed at the end of the prior quarter. Long-term debt was $1.68 billion compared with the $1.45 billion recorded at the end of the previous quarter.

The company generated $144.1 million of cash in operating activities and capex was $16.9 million in the quarter. Broadridge paid out $62 million in dividends in the reported quarter.

Guidance

Broadridge reduced its fiscal-year 2020 guidance for adjusted EPS to 5-7% from the 8-12% expected previously. The company expects revenue growth at the lower end of the previously-guided range of 3% to 6%.

Broadridge continues to anticipate recurring fee revenue growth of 8-10%. Adjusted operating income margin is estimated to be approximately 18%. Closed sales are anticipated to be between $190 million and $230 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, Broadridge Financial has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Broadridge Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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