EXLS Stock Study (6-28-24)

I recently studied ExlService Holdings, Inc. (EXLS) with a closing price of $31.11.

M* writes:

     > ExlService Holdings Inc. is a business process management company
     > that provides digital operations and analytical services to clients
     > driving enterprise-scale business transformation initiatives that
     > leverage company’s deep expertise in analytics, AI, ML and cloud.
     > The company offers business process outsourcing and automation
     > services, and data-driven insights to customers across multiple
     > industries. The company operates through four segments based on
     > the products and services offered and markets served: Insurance,
     > Healthcare, Emerging, Analytics. The vast majority of the company’s
     > revenue is earned in the United States, and more than half of its
     > revenue comes from Analytics segment.

Over the last 10 years, this medium-size company has grown sales and EPS at annualized rates of 12.6% and 18.6%, respectively. Lines are mostly up, straight, and parallel except for a sales dip in ’20 and EPS dip in ’17.

Over the past decade, PTPM leads peer and industry averages while ranging from 6.8% in ’18 to 14.6% in ’23 with a last-5-year mean of 12.3%. ROE leads peer averages while lagging the industry despite increasing from 7.7% (’14) to 21.2% (’23) with a last-5-year mean of 16.0%. Debt-to-Capital is lower than peer and industry averages despite increasing from 10.9% (’14) to 23.4% (’23) with a last-5-year mean of 30.2%.

Per M*, Quick Ratio is 2.3 and Interest Coverage is 19.4. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

• YF projects YOY 10.9% and 11.3% for ’24 and ’25, respectively (based on 11 analysts).
• Zacks projects YOY 10.7% and 11.2% for ’24 and ’25, respectively (6 analysts).
• CFRA reports ACE of 10.9% YOY and 11.1% per year for ’24 and ’23-’25, respectively (11).
• M* offers a 2-year annualized ACE of 11.1%.

I am forecasting below the range at 9.0% per year.

With regard to EPS growth:

• MarketWatch projects 13.8% and 14.7% per year for ’23-’25 and ’23-’26, respectively (based on 11 analysts).
• Nasdaq.com projects 19.5% YOY and 16.9% per year for ’25 and ’24-’26, respectively (7/7/3 analysts for ’24/’25/’26).
• Seeking Alpha projects 4-year annualized growth of 14.2%.
• YF projects YOY 12.6% and 13.7% for ’24 and ’25, respectively (11), along with 5-year annualized growth of 14.8%.
• Zacks projects YOY 12.6% and 13.6% for ’24 and ’25, respectively (8), along with 5-year annualized growth of 14.7%.
• Value Line reports annualized ACE of 14.7% from ’23-’28 (5).
• CFRA reports ACE of 46.4% YOY and 21.9% per year for ’24 and ’23-’25, respectively (11).
• M* projects long-term annualized growth of 15.0%.

My 11.0% per year forecast is below the long-term-estimate range (mean of five: 14.7%). Initial value is ’23 EPS of $1.10/share rather than 2024 Q1 $1.08 (annualized).

My Forecast High P/E is 30.0. Over the past decade, high P/E ranges from 30.6 in ’16 to 45.6 in ’17 with a last-5-year mean of 38.3 and a last-5-year-mean average P/E of 30.5. I am forecasting below the range.

My Forecast Low P/E is 20.0. Over the past decade, low P/E ranges from 15.7 in ’20 to 31.8 in ’17 with a last-5-year mean of 22.7. I am near the bottom of the range [only ’20 and ’15 (18.4) are less].

My Low Stock Price Forecast (LSPF) of $22.00 is default based on initial value given above: 29.3% less than the previous close and 12.7% less than the 52-week low.

These inputs land EXLS in the HOLD zone with a U/D ratio of 2.7. Total Annualized Return (TAR) is 12.3%.

PAR (using Forecast Average—not High—P/E) of 8.3% is less than I seek for a medium-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 266 studies done in the past 90 days (my study along with 51 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 10.9%, 12.7%, 32.0, and 22.4, respectively. I am lower across the board. Value Line projects a 2025 [versus 2028] average annual P/E of 19.9 that is less than MS (27.2) and myself (25.0).

MS high / low EPS are $1.98 / $1.08 versus my $1.85 / $1.10 (per share). My high EPS is less due to a lower growth rate. Value Line’s ACE high EPS of $2.18 exceeds both.

MS LSPF of $23.80 implies a Forecast Low P/E of 22.0: less than the above-stated 22.4. MS LSPF is 1.6% less than the default $1.08/share * 22.4 = $24.19 resulting in [slightly] more conservative zoning. MS LSPF is 8.2% higher than mine, though.

With regard to valuation, PEG is 1.3 and 2.4 per Zacks and my projected P/E, respectively: the latter overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] is fair at 0.94.

MOS is robust in the current study because my inputs are below MS and the respective analyst/historical ranges. As further evidence, MS TAR of 16.2% is higher than mine.

This seems like a very organized stock study with plentiful analyst estimates (even without long-term from Value Line), a relatively tight range of those estimates, a relatively high Earnings Predictability score (75 from Value Line), and a straightedge visual inspection except for ’17 EPS.

Per U/D, EXLS is a BUY under ~$30/share. The stock needs to approach $27.50 in order to meet the BI TAR criterion given a forecast high price ~$55.