Broadridge Financial Solutions

Broadridge finished fiscal 2026 on a high note. Fiscal fourth-quarter revenue grew 7% and adjusted earnings per share grew 8%, both beating the FactSet consensus estimate by 2%. Broadridge’s closed sales (a metric akin to bookings) eclipsed its guidance. Shares rose 8% in Aug. 4 intraday trading.

Why it matters: There was little to quibble with in Broadridge Financial Solutions’ fourth quarter. Equity position growth and trading volume continue to support strong results. The firm’s initial outlook for fiscal 2027 adjusted EPS of $10.37-$10.75 was solid relative to FactSet consensus of $10.40 and our estimate of $10.54. Closed sales of $158 million were up from $114 million in the year-ago quarter. This resulted in fiscal 2026 closed sales of $305 million, above the lowered guidance for $240 million-$290 million. For fiscal 2027, Broadridge expects $290 million-$330 million in closed sales. The closed sales beat suggests artificial intelligence spending needs are not making potential clients skittish. In addition, it was not just driven by large sales but included faster signings of midsize deals. Broadridge sees a strong pipeline, so this suggests limited pull-forward of deals.

The bottom line: As we digest these results, we are maintaining our Wide Economic Moat Rating and $255 fair value estimate. We continue to see shares as undervalued. We’re pleased to see the company step up buybacks of its undervalued shares. Broadridge repurchased $251 million of its shares in the quarter. The firm’s current forward P/E (16 times its midpoint fiscal 2027 guidance) sits well below its three-year average of 23 times.

Between the lines: In addition to strong results, we attribute some of the positive reaction to seeing little in the quarter to add to bear cases that tokenization will result in lower demand for Broadridge’s governance services and that digitization of communication will make it easier for others to compete.

Broadridge’s view has been that tokenized shares will continue to have the same governance requirements. Broadridge’s signing of Ondo, which offers tokenized US equities to non-US persons with similar fee schedules, supports this. That said, it’s unclear if a pass-through voting position generates the same amount of fees as a beneficial position. Our view continues to be that tokenization will not meaningfully cannibalize liquid and mature asset classes such as US equities, which already trade quite efficiently.

Bears also believe that the Securities and Exchange Commission e-delivery rule, which allows broker/dealers to shift the default to e-delivery for interims and proxies, will make it easier for digital-native entrants to compete with Broadridge. However, investors can still opt in for print, broker/dealers will still have to manage this preference, and the vast majority of deliveries are currently electronic.

Diving deeper into Broadridge’s segment results:

Investor communication solutions (63% of fiscal 2026 fee revenue and 71% of adjusted operating income): ICS revenue grew 8% with recurring fee revenue up 10% (9% organically). Regulatory revenue was up 14%, driven by strong position growth (14% billable equity and 7% mutual funds/exchange-traded funds). We suspect timing or some non-position-related revenue growth may have also led to some outperformance. Equity position growth was 17% with billable position growth of 14%. This suggests that fractional shares through managed accounts (including direct indexing) continue to drive positions. Broadridge’s testing, which has been conservative recently, suggests near-term high-single-digit billable equity position growth and mid-single-digit fund growth (our model: 11% equity, 6% fund for fiscal 2026). Data-driven fund solutions revenue grew 7%, a modest deceleration from 9% in the third quarter. Issuer solutions revenue growth was steady at 8% versus the third quarter. Customer communication growth at 1% continues to be the weak point as print volume softens.

Segment EBIT margin (excluding amortization of intangible assets) was flat at 31.3% versus last year. Excluding distribution revenue, it declined 10 basis points to 48.1%. Overall, we are not concerned about this decline, as lower interest rate-driven float income in data-driven fund solutions, lower high-margin event-driven revenue, and tuck-in deals likely below the average suggest positive underlying operating leverage.

Global technology and operations (37% of fiscal 2026 fee revenue and 29% of adjusted operating income): GTO revenue rose 5% (3% organic). Capital markets revenue was up 4% organically, and wealth and investment management revenue rose 1%, as a 4-percentage-point headwind from elevated software term license revenue in the year-ago quarter affected the comparison. Broadridge expects a strong GTO license quarter (4-percentage-point tailwind from a renewal) in the first quarter of fiscal 2027. Though Broadridge classifies all GTO revenue as recurring, this is a reminder that it is more “recurring-ish.” Segment EBIT margin (excluding the amortization of intangible assets) of 21.5% was up from 15.9% last year and suggests good expense control.

After adjusting our valuation model following the firm's release of fiscal fourth-quarter financial results, we are decreasing our fair value estimate to $250 from $255 due to multiple minor model adjustments. We peg the firm's weighted average cost of capital assumption at 7.9%. Our DCF-based fair value estimate translates to approximately 27 times our fiscal 2027 GAAP EPS estimate (and 24 times our non-GAAP EPS estimate, which excludes special items and the amortization of acquired intangibles).

Over the next five years, we expect organic revenue growth of about 6% and Broadridge to earn about half of its profit from its governance (proxy and interim communication) franchise. We expect its equity position growth to be about 10% in the medium term, driven by managed accounts. Because Broadridge earns the same fee if a beneficial owner owns 10 shares or 1,000 shares, it is the number of positions that matters, and we expect total positions to be robust through a variety of market conditions. Because pricing is regulated, we expect it to be flat.

Given the scalability of Broadridge’s business model, we expect the investor communication solutions segment's operating margins (net of distribution revenue) to be in the 34%-37% range during our five-year forecast period. In the global technology and operations segment, we expect mid-single-digit organic revenue growth. On a firmwide basis, we expect non-GAAP operating margin expansion of about 40 basis points per year.

Overall, we believe Broadridge merits a wide moat based primarily on switching costs. In addition, we believe the firm’s regulatory communication has a scale-based cost advantage. We note that Broadridge exhibits many of the characteristics of firms with switching costs as a moat source, such as a high amount of recurring revenue (over 90% of fee revenue is recurring revenue, and revenue retention rates are typically about 97%-98%). Broadridge’s regulatory communication business, whereby it delivers proxy and interim communications to US security holders in the “street name,” is its crown jewel, in our view, and the source of its wide moat, in our view.

Broadridge is the market-leading player in the proxy and interim communication business. Most securities in the United States are held in the street name of brokerages rather than directly under the name of the end investor, and as a result, issuers (whether they be corporate issuers, exchange-traded funds, or mutual funds) can’t directly communicate with their beneficial owners. Communication and proxy voting have to be coordinated with the broker/dealer, the issuer, and the beneficial owner; virtually all broker/dealers hire Broadridge to serve as a third-party agent to handle this role. Broadridge processes over 80% of outstanding shares.

Broadridge’s view has been that tokenized shares will continue to have the same governance requirements. Broadridge’s signing of Ondo, which offers tokenized US equities to non-US persons with similar fee schedules, supports this. That said, it’s likely that a pass-through voting position generates lower fees than a beneficial position. We view tokenization as primarily being incremental for non-US investors; we do not believe that tokenization will meaningfully cannibalize liquid and mature asset classes such as US equities, which already trade quite efficiently.

By law, issuers must reimburse broker/dealers for the costs of forwarding proxy materials. The maximum fees are set forth by the proxy voting review committee, a self-regulating organization with oversight from the SEC. Because there is no incentive to charge below the maximum fees, in practice, the maximum fees are the fees charged to issuers, and some of the revenue is shared with the broker/dealer. We believe switching costs arise from Broadridge’s multiyear contracts and client inertia.

We also believe that Broadridge’s corporate issuer clients view proxy fees as a cost of being public, as it is relatively immaterial to their bottom line. For example, McDonald’s disclosed that it has about 5 million beneficial owners; at Broadridge’s average of approximately $1 per delivery, this becomes $5 million in fee expenses for McDonald’s. Likewise, we believe micro- or small-cap companies have only a fraction of the shareholders, so they face fees of $20,000-$50,000. As a result, we don’t expect corporate issuers to spend much time or money lobbying to have proxy delivery fees reduced. If there is one area of greater risk, it would be in the mutual fund interim business, where clients are more concentrated and more concerned about their expenses.

Broadridge’s competitors include Mediant Communications, which we believe has only a small handful of clients, such as Janney Montgomery Scott and Interactive Brokers. In addition, Robinhood uses Say Technologies, which it acquired. Overall, we believe these competitors have very limited market share. We believe that because of Broadridge’s scale, it has a cost advantage and can offer an attractive revenue share with the broker/dealer. In addition, by having many broker/dealer clients, Broadridge earns an additional fee for householding proxies.

We understand that Broadridge’s contracts with broker/dealers are typically five to seven years. Another barrier is the “nobody ever got fired for going with IBM” mindset as it applies to Broadridge. The service Broadridge provides is a regulatory necessity, but is relatively undifferentiated and not a big driver for the broker/dealers, so inertia tends to be there.

From its proxy and interim communication business, Broadridge has developed mailing, technology, and processing capabilities and has leveraged these capabilities to provide other services. An example of this would be mailing out trade confirmations for broker/dealers. To corporate issuer clients, Broadridge provides analytics, registered shareholder solutions (for the minority of shareholders who still hold their shares directly), and virtual shareholder meeting capabilities. Overall, we believe these other services have a narrow moat based on switching costs from client inertia and the time/resources to find a new solution.

Broadridge’s GTO segment provides securities processing solutions for capital markets, wealth management, and asset management firms. Broadridge provides solutions that automate the securities transaction lifecycle including data aggregation, performance reporting, cash management, reconciliation, and other services. Broadridge's solutions include desktop productivity tools, data aggregation, performance reporting, reconciliation, and other solutions. We believe Broadridge primarily competes with in-house solutions as well as FIS Global (Sungard). The biggest risk, in our view, would be a customer loss due to mergers and acquisitions. For example, Broadridge lost ETrade as a client due to its acquisition by Morgan Stanley. In 2021, Broadridge acquired Itiviti, a provider of trading technology to buy-side and sell-side firms. Similar to other business process outsourcing, or BPO, companies and software companies, we believe the switching costs stem from process disruption and the time/resources needed to onboard to a new solution. We point out that Broadridge’s wealth management deal with UBS was signed in late 2018, but it took until fiscal 2024 for Broadridge to recognize the bulk of this revenue.

Broadridge has a dominant market share position on delivering proxies and interims to beneficial shareholders. Direct indexing and the rise of retail investing can support position growth beyond consensus expectations.

During the financial crisis, Broadridge’s equity position count was down only 2% in 2009, indicating that its business model is recession-resistant.

Broadridge’s global technology and operations offerings are sticky, and with the move toward outsourcing, the firm should be able to grow faster than the addressable market.

Broadridge’s fees are set by the NYSE proxy working group, which is overseen by the SEC. A fee review could have a negative impact. In addition, asset managers continue to face fee pressures and may be more mindful of regulatory fees in Broadridge's mutual fund and ETF interim business.

As Broadridge expands via acquisitions, its new businesses may be in businesses more competitive than its proxy and interim communications business.

Emerging infrastructure and technology such as tokenized equities could negative impact Broadridge's proxy and securities processing business.