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3 Outsourcing Stocks With Massive Upside Potential

The outsourcing industry remains well-positioned for significant growth as companies focus on their core competencies, expense management, and operational efficiency. Therefore, it could be prudent to buy outsourcing stocks ICF International (ICFI), Universal Technical Institute (UTI), and RCM Technologies (RCMT), given their massive upside potential. Read on…

With the growing need for businesses to achieve cost savings, flexibility, scalability, and operational efficiency, the outsourcing industry looks well-positioned for long-term growth. Moreover, the advancement of technology and increasing availability of global talent contribute to the expansion of the outsourcing industry.

Given this backdrop, it could be wise to buy fundamentally strong outsourcing stocks ICF International, Inc. (ICFI), Universal Technical Institute, Inc. (UTI), and RCM Technologies, Inc. (RCMT).

Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industry’s prospects.

Outsourcing is a popular business strategy that enables enterprises to focus on their core competencies by entrusting their non-core tasks to specialized service providers. Outsourcing allows companies to focus on critical business aspects, reduce costs, access a vast talent pool, improve productivity, reduce dependency, etc.

Outsourcing services include IT, customer support, management, staffing, and education services. Outsourcing enables businesses to gain a competitive edge as they focus on what they do best, helping them to achieve operational efficiency and reduce costs.

Enterprises are outsourcing the recruitment and staffing processes to meet their employment needs. The rising demand for effective recruiting and the trend of outsourcing recruitment to third-party providers is expected to drive growth in the Recruitment Process Outsourcing (RPO) market. The global RPO market is projected to expand at a CAGR of 16.1%, reaching $24.32 billion by 2030.

Moreover, there is a rising demand for personalized learning and low-cost and scalable learning systems. Educators are outsourcing to improve learning and development, enhance efficiency, address skill shortages, and reduce costs. The global learning services outsourcing market is anticipated to grow at a CAGR of 5.6% between 2023 and 2030.

With these favorable trends in mind, let’s delve deeper into the fundamentals of the featured stocks.

ICF International, Inc. (ICFI)

ICFI provides management, marketing, technology, and policy consulting and implementation services for government and commercial clients. It researches critical policy, industry, and stakeholder issues, trends, and behaviors; measures and evaluates results and their impact; and provides clients strategic planning and advisory services on navigating societal, business, market, business, communication and technology challenges.

On November 16, ICFI announced that the U.S. Department of Homeland Security (DHS), Immigration and Customs Enforcement (ICE), awarded it a $32 million task order to modernize ICE's homeland security investigations systems over five years, including a one-year base and four one-year option periods.

In terms of the trailing-12-month gross profit margin, ICFI’s 35.65% is 17.8% higher than the 30.28% industry average. Likewise, its 8.06% trailing-12-month levered FCF margin is 32.9% higher than the industry average of 6.07%. Furthermore, the stock’s 0.93x trailing-12-month asset turnover ratio is 16.6% higher than the industry average of 0.80x.

ICFI’s revenue for the third quarter that ended September 30, 2023, rose 7.2% year-over-year to $501.52 million. Its net income increased 24.3% year-over-year to $23.74 million. The company’s adjusted EBITDA increased 7.3% over the prior-year quarter to $54.28 million. Its non-GAAP EPS came in at $1.81, representing an increase of 12.4% year-over-year.

For the quarter ending December 31, 2023, ICFI’s EPS and revenue are expected to increase 4.7% and 1.1% year-over-year to $1.63 and $480.73 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. The stock has gained 42.1% year-to-date to close the last trading session at $140.78.

ICFI’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Stability and Sentiment. Within the A-rated Outsourcing – Management Services industry, it is ranked #2 out of 5 stocks. Click here to see the additional ICFI ratings for Growth, Value, Momentum, Sentiment, and Quality.

Universal Technical Institute, Inc. (UTI)

UTI provides transportation, skilled trades, and healthcare education programs in the United States. The company operates in two segments: UTI and Concorde. It offers certificate, diploma, or degree programs under various brands, such as Universal Technical Institute, Motorcycle Mechanics Institute, Marine Mechanics Institute, NASCAR Technical Institute, and MIAT College of Technology.

On October 23, 2023, UTI announced the additional program expansions of Heating, Ventilation, Air Conditioning, and Refrigeration (HVACR) in Avondale, Ariz.; Bloomfield, N.J.; and two California locations, Long Beach and Sacramento. The programs are expected to launch in late fiscal 2024 and early fiscal 2025. The program expansions are part of its growth and diversification strategy.

In terms of the trailing-12-month gross profit margin, UTI’s 53.83% is 51.7% higher than the 35.47% industry average. Likewise, its 9.33% trailing-12-month Capex/Sales is 207.3% higher than the industry average of 3.04%.

For the fourth quarter ended September 30, 2023, UTI’s revenues increased 53.9% year-over-year to $170.30 million. Its adjusted EBITDA rose 27% over the prior-year quarter to $19.17 million. The company’s adjusted net income increased 5% year-over-year to $8.41 million.

Street expects UTI’s EPS and revenue for the quarter ending December 31, 2023, to increase 75% and 40.8% year-over-year to $0.04 and $169.02 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 82% to close the last trading session at $10.94.

UTI’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.

It has a B grade for Sentiment. It is ranked #5 out of 20 stocks in the A-rated Outsourcing – Education Services industry. Click here to see UTI's additional Growth, Value, Momentum, Stability, and Quality ratings.

RCM Technologies, Inc. (RCMT)

RCMT provides business and technology solutions globally through three segments: Engineering, Specialty Health Care, and Life Sciences and Information Technology. The company’s diverse services encompass engineering, healthcare staffing, and life sciences solutions, serving various industries.

On May 15, 2023, RCMT announced the RCM Energy Services Operation Centre opening in Eschborn/Frankfurt am Main, Germany. The expansion within Europe is part of its strategic plan to expand its global footprint and become a preferred engineering partner for the energy transition and grid of the future.

The center’s opening will help the company benefit from the rising investments in electrical infrastructure changes across the European Union.

In terms of the trailing-12-month net income margin, RCMT’s 6.25% is 3.1% higher than the 6.07% industry average. Likewise, its 11.35% trailing-12-month levered FCF margin is 87% higher than the industry average of 6.07%. Furthermore, the stock’s 56.50% trailing-12-month Return on Common Equity is 363.5% higher than the industry average of 12.19%.

RCMT’s revenue for the fiscal third quarter ended September 30, 2023, stood at $58.05 million. Its adjusted EBITDA came in at $4.62 million. The company’s net cash provided by operating activities rose significantly year-over-year to $11.04 million. Its net income rose 6.8% over the prior-year quarter to $3.76 million. Also, its EPS came in at $0.46, representing an increase of 39.4% year-over-year.

Analysts expect RCMT’s EPS and revenue for the quarter ending December 31, 2023, to increase 42.6% and 2.9% year-over-year to $0.67 and $72.29 million, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 122.4% year-to-date to close the last trading session at $27.44.

RCMT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It has an A grade for Value and a B for Sentiment and Quality. Within the A-rated Outsourcing – Staffing Services industry, it is ranked #2 out of 19 stocks. To see the other ratings of RCMT for Growth, Momentum, and Stability, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >


ICFI shares were unchanged in premarket trading Thursday. Year-to-date, ICFI has gained 42.77%, versus a 24.39% rise in the benchmark S&P 500 index during the same period.



About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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