Cognizant Nears, ExlService Hits Record As Outsourcing Stocks Rise
You can almost hear the conversation: “That team did such a great job on that project,” said CEO Joe Fiction, “let’s give them the entire product line to operate and save some dough.” Converting traditional business process outsourcing (BPO) into business process management (BPM) framed the Indo-U.S. BPO Summit this week in Orlando, Fla., sponsored by the Indo-American Chamber of Commerce and India’s National Association of Software and Services Companies ( NASSCOM). Billed as a first-of-its-kind conference, the timing couldn’t have been better, as many of the outsourcers were trading near record highs after a slow start to the year. Service-level agreements “are changing to reflect this (BPO-to-BPM conversion), becoming more business-outcome-focused and leading the market to shift from a pure RFP (requests for proposal) procurement approach to a managed-service, end-to-end solution offering,” said Cowen analyst Bryan Bergin in a research note Friday. “This drives the shift from BPO to BPM and a strategic partner position. The effect of this evolution increases the stickiness of the revenue stream but also ties the fortunes of the provider even closer to that of their client base.” Many BPOs were represented at the show, including Genpact ( G ), Wipro ( WIT ), Convergys ( CVG ) and WNS Holdings ( WNS ). But Bergin focused on Cognizant Technology Solutions ( CTSH ) and ExlService Holdings ( EXLS ) for their “industry depth and value-added service approaches that position each to win in this evolving landscape,” he said. Cognizant stock was up a fraction in afternoon trading in the stock market today , near 63 but still 10% off its Oct. 28 record high. ExlService stock was up more than 1%, near 52.50, just off of Wednesday’s all-time high of 52.92. Wipro stock was up 1%, 5% off its 52-week high. Genpact stock hit a record high Friday and was up nearly 1.5% Friday afternoon. WNS was up 3.5% Friday, just 7% from an eight-week high touched Nov. 2. Infosys ( INFY ) stock was up more than 1% and near a five-year high. Hewlett Packard Enterprise ( HPE ) stock was up 3% and hit a new record high Friday. “We favor EXLS for its traditional BPO model pairing with an operations consulting business and rapidly growing analytics offering,” Cowen’s Bergin said. “CTSH is building its BPM via a vertical-specific approach, leveraging its scale and expertise in health care and financial services to drive its (approximately) $1 billion business that is growing faster than the company average. We favor such approaches in the evolving BPM landscape.” Cowen carries ExlService with an outperform rating and a 63 price target. Cowen too rates Cognizant as outperform, with a 65 target. ExlService is a member of IBD’s Commercial Services-Outsourcing industry group, which hit a record high Friday. Cognizant is a member of IBD’s Computer-Tech Services industry group, which was trading 9% off its all-time high set Nov. 5. Both companies are near the top of their heaps for overall stock and operating performance, with ExlService earning an IBD Composite Rating of 98 out of a best possible 99, and Cognizant a 93 CR.