With a commitment to bolster cost efficiency, businesses are increasingly turning to external service providers to streamline their operations, boosting the outsourcing industry. This strategic shift is further amplified by globalization and technological advancements, creating an environment where seamless collaboration across borders is not only possible but essential.

So, investors could consider quality outsourcing stocks Stantec Inc. (STN), ManpowerGroup Inc. (MAN), Adtalem Global Education Inc. (ATGE), and Mitie Group plc (MITFY) for year-end gains.

The rise of nearshore outsourcing, the adoption of cloud-based outsourcing solutions, the integration of robotic process automation, and an increased emphasis on knowledge process outsourcing are fueling the outsourcing industry.

The growth of the business process outsourcing (BPO) market is driven by enterprises' focus on efficiency, agility, cost reduction, and core competency acceleration amid dynamic business changes. Organizations are increasingly adopting BPO services, leveraging technological trends like cloud computing and Artificial Intelligence (AI) to enhance business efficiency.

The global business process outsourcing market is projected to grow at a CAGR of 9.4% from 2023 to 2030.

In addition, the Recruitment Process Outsourcing (RPO) industry is primarily driven by the demand for effective recruiting processes and cost reduction. Also, AI is poised to revolutionize the industry by automating candidate sourcing, rediscovery, employee reference, and diversity hiring, thereby improving strategic workforce planning.

The global RPO market is projected to expand at a CAGR of 16.1%, reaching $24.32 billion by 2030.

Furthermore, educators are increasingly turning to specialized organizations to enhance efficiencies, address skill shortages, and reduce costs. The rising demand to bridge skill gaps and deliver high-quality training also propels the learning services market. The global learning services outsourcing market is projected to grow at a CAGR of 5.6% between 2023 and 2030.

Considering these conducive trends, let's take a look at the fundamentals of the four best outsourcing stocks.

Stantec Inc. (STN)

Headquartered in Edmonton, Canada, STN offers e-professional services in the areas of infrastructure and facilities to public and private sector clients internationally. The company provides consulting services in engineering, architecture, interior design and surveying and offers clients planning and design consulting services.

On December 5, STN unveiled its 2024–2026 Strategic Plan, outlining ambitious targets by the end of 2026. The plan includes achieving a net revenue of CAD7.50 billion ($5.52 billion), organic net revenue growth exceeding 7% CAGR, an adjusted EBITDA margin between 17% to 18%, and adjusted EPS growth in the range of 15% to 18% CAGR. The company also emphasizes a disciplined approach to growth through strategic acquisitions, leveraging its strong balance sheet and recent common share offering proceeds.

It pays an annual dividend of $0.57, which translates to a yield of 0.74% on the prevailing price level. The company has raised its dividend payouts for seven consecutive years.

During the fiscal third quarter that ended on September 30, 2023, STN’s net revenue grew 13.5% year-over-year to CAD1.32 billion ($972.08 million). The company’s adjusted EBITDA increased 24.8% from the year-ago quarter to CAD241.30 million ($177.70 million).

The company’s adjusted net income was CAD126.70 million ($93.31 million), up 33.4% from the prior year’s quarter and adjusted EPS grew 32.5% year-over-year to CAD1.14.

STN revised its 2023 targets due to strong year-to-date performance. The revised annual ranges include a 12-14% net revenue growth, 16.7-17.1% adjusted EBITDA as a percentage of net revenue, above 8.2% for adjusted net income as a percentage of net revenue, 22-25% adjusted EPS growth, and above 11.5% for adjusted ROIC.

Street expects STN’s revenue and EPS for the fourth quarter (ending December 2023) to increase 8.1% and 4.9% year-over-year to $901.69 million and $0.63, respectively. Also, the company has topped the consensus EPS and revenue estimate in all four trailing quarters, which is remarkable.

Shares of STN have surged 58.2% year-to-date and 23.2% over the past six months to close the last trading session at $75.83.

STN’s POWR Ratings reflect its healthy fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.

STN has an A grade for Sentiment and a B for Growth, Momentum, Stability, and Quality. It is ranked #7 out of 41 stocks in the B-rated Outsourcing – Business Services industry.

In addition to the POWR Ratings highlighted above, one can access STN’s Value rating here.

ManpowerGroup Inc. (MAN)

MAN is a global provider of workforce solutions and services. The company offers permanent, temporary, and contract recruitment of professionals and administrative and industrial positions under the Manpower and Experis brands.

In November 2023, MAN declared a semi-annual dividend of $1.47 per share, payable on December 15, 2023. The company distributes an annual dividend of $2.94, which translates to a yield of 3.84% on the current market price, higher than its four-year average dividend yield of 2.94%.

Its dividend payouts have grown at a CAGR of 9.2% over the past three years.

MAN’s revenues from services amounted to $4.68 billion in the fiscal third quarter ended September 30, 2023. Gross profit stood at $821.90 million. Its net earnings came in at $30.30 million and $0.60 per share.

For the nine months ended September 30, MAN’s cash and cash equivalents stood at $571.10 million, compared to $527.50 million, compared to $527.50 million for the same period the previous-year.

MAN’s EPS and revenue are expected to be $1.20 and $4.56 billion in the fiscal fourth quarter ending December 2023.

Over the past month, the stock has gained 2.5% to close its last trading session at $75.67.

It is no surprise that MAN has an overall rating of B, equating to a Buy in our proprietary rating system.

MAN is rated an A in Value and a B in Growth. It is ranked #9 among 20 stocks in the A-rated Outsourcing - Staffing Services industry.

To see the MAN’s additional Growth, Momentum, Stability, Sentiment, and Quality ratings, click here.

Adtalem Global Education Inc. (ATGE)

ATGE is a worldwide workforce solutions provider with three segments: Chamberlain (focused on nursing and health professions education); Walden (offering online degrees in various fields); and Medical and Veterinary (providing programs in the medical and veterinary education sector).

In September, ATGE and DaVita Inc. (DVA), a prominent kidney care provider, partnered to introduce the "Introduction to Nephrology Nursing" curriculum as part of the Practice Ready. Specialty Focused. ™ (PRSF) initiative at Chamberlain University.

The program aims to prepare pre-licensure nursing students for high-demand careers by offering one-on-one clinical experiences with practicing nurses before graduation.

During the fiscal first quarter, which ended September 30, 2023, ATGE’s revenue grew 4.1% year-over-year to $368.85 million. The company’s adjusted operating income and EBITDA stood at $63.61 million and $80.54 million, respectively. Moreover, its adjusted EPS increased 3.3% from the prior-year quarter to $0.93.

For the fiscal year 2024, the company anticipates revenue to be in the range of $1.47 billion to $1.53 billion, with a projected adjusted EPS between $4.25 and $4.45.

ATGE’s revenue and EPS are expected to grow 2.6% and 2.1% year-over-year to $379.42 million and $1.15 for the third quarter ending March 2024, respectively. The company surpassed the revenue and EPS estimates in each of the trailing four quarters, which is impressive.

ATGE’s shares increased 62.2% over the past year and 71.5% year-to-date to close the last trading session at $60.88.

ATGE’s POWR Ratings reflect this solid outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

ATGE has a B grade for Growth and Quality. Within the A-rated Outsourcing – Education Services industry, it is ranked #4 among 20 stocks.

Click here for ATGE’s additional Value, Momentum, Stability, and Sentiment ratings.

Mitie Group plc (MITFY)

Headquartered in London, the United Kingdom, MITFY and its subsidiaries provide strategic outsourcing services in the United Kingdom and internationally. The company operates in eight segments: Business Services; Technical Services; Central Government & Defense (CG&D); Communities; Care & Custody; Landscapes; Waste; and Spain.

On November 27, MITFY announced that it would pay a dividend of £0.01 ($0.01) per share on the 31st of January. It pays an annual dividend of $0.15, which translates to a yield of 2.02% on the current market price. The company has raised its dividend payouts at a CAGR of 28.3% over the past three years.

During the six months ended September 30, 2023, MITFY’s total group revenue increased 11.2% year-over-year to £2.08 billion ($2.24 billion). Its total operating profit increased 12.5% year-over-year to £56.80 million ($61.25 million). The company’s total profit after tax and EPS came in at £42.90 million ($46.26 million) and 3p, up 21.5% and 30.4% over the prior-year quarter, respectively.

Analysts expect MITFY’s revenue to increase 9.8% year-over-year to $5.59 billion in the fiscal year ending March 2024.

The stock has gained 45.6% year-to-date to close the last trading session at $5.17. It has returned 31.9% over the past year.

MITFY’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

It has an A grade for Value and Stability and a B for Growth. Within the A-rated Outsourcing – Management Services industry, it is ranked first out of five stocks.

Beyond what we stated above, we also have given MITFY grades for Momentum, Sentiment, and Quality. Get all the MITFY ratings here.

What To Do Next?

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STN shares were trading at $76.22 per share on Wednesday morning, up $0.39 (+0.51%). Year-to-date, STN has gained 60.10%, versus a 23.00% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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