Weekly Equity Idea Highlight - 2020 06 08
The market is expecting EXLS to see recent returns roll over and sowing growth because of concerns about economic or competitive issues. However, EXLS has had remarkably stable returns and strong growth, as they have taken share in their core BPO business, and moved into process automation and growth consulting businesses.While EXLS is priced for UAFRS-based (Uniform) ROA to fall by 1/2 going forward, management has been actively investing in their business, including a focus on expansion into AI core competencies, and into helping their clients find new revenue opportunities and to optimize their current pricing and business strategies.
Furthermore, management alignment, which focuses them on improving profitability and growing should align management to pursue longer-term strategies that create value for shareholders. Finally, management showed continued confidence about several key drivers for the business.
They were confident in the most recent call about how the pandemic has strengthened their relationships with their clients, and how they are preserving capital in the midst of the pull-back. These signals are in line with prior fundamental momentum the company had seen in the Q4 and prior calls. Management has previously shown confidence about how they are positioned with clients and key wins they are seeing including in their Analytics platform. Management also has showed confidence about winning more time in the C-suite of their clients, driving more growth, and how they are ahead of their clients in key AI and technology areas that makes them a trusted partner.
Considering low market expectations, management's smart strategic focus, improving Uniform ROA, and the outlook for the business, there appears to be equity upside potential for EXLS.
ExlService Holdings is a holding company. Through its subsidiaries, the company is an operations management and analytics company. The company's operations management services involve the transfer to the company's business operations of a client such as claims processing, clinical operations, or financial transaction processing, after which the company administers and manages those operations for its client on an ongoing basis, or in case of consulting, consulting services related to transformation services, including digital transformation services. The company's Analytics services focus on driving business outcomes for its customers by generating data-driven insights across various parts of its customers' business.
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