Broadridge Financial Solutions (NYSE:BR) Passes the Quality Investing 'Caviar Cruise' Screen

For investors aiming to assemble a portfolio of durable, high-achieving companies for the long term, the quality investing method provides a structured approach. This strategy goes beyond looking for low-priced stocks and centers on finding businesses with lasting competitive strengths, sound financial condition, and a demonstrated history of creating high returns on capital. The "Caviar Cruise" stock screen puts this idea into practice by selecting for companies with good past revenue and profit increases, high returns on invested capital, reasonable debt, and profits supported by significant free cash flow. The aim is to locate firms that are not only earning money but are financially sound and well-run, positioning them as possible fits for a buy-and-hold approach.

One firm that appears from this strict screening is Broadridge Financial Solutions, Inc. (NYSE:BR). As a top provider of investor communications and technology-based solutions to the worldwide financial services sector, Broadridge’s operations seem to match the central principles of quality investing.

Matching the Central Quality Investing Standards

The Caviar Cruise screen uses a number of numerical filters to find quality prospects. Broadridge’s financial figures show a solid match with these important conditions:

• Continued Increase: The screen calls for at least a 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over five years. Broadridge passes this easily, with a 5.35% revenue CAGR and a higher 13.72% EBIT CAGR. Importantly, EBIT increase surpassing revenue increase, as shown here, indicates better operational efficiency and possible pricing strength, pointing to an improving business model.
• Excellent Capital Use: A key part of quality investing is a high return on invested capital (ROIC), which gauges how well a firm produces profits from its capital base. The screen asks for an ROIC (leaving out cash, goodwill, and intangibles) over 15%. Broadridge shows a strong number of 65.82%, reflecting a notable skill in building value from its operational spending. This points to a wide economic moat and operations that scale well.
• Financial Strength: To confirm a firm is not carrying too much debt, the screen employs a Debt-to-Free Cash Flow (FCF) ratio under 5. Broadridge’s ratio of 2.68 fits well within this boundary, meaning it could pay off all its debt with under three years of current FCF. This offers a good margin of safety and financial room to maneuver.
• Earnings of High Standard: The "Profit Quality" measure contrasts free cash flow with net income, with the screen looking for a five-year average above 75%. Broadridge’s average of 109.36% is very good, meaning it turns all its accounting profits into actual cash, and more. This is a clear sign of lasting earnings and a business that does not depend on accounting changes to seem profitable.

A Look at Broadridge's Basic Profile

An examination of Broadridge’s detailed fundamental analysis report supports the results from the screen while adding detail. The company receives a good profitability rating of 8 out of 10, with leading margins and returns on equity that beat most of its IT Services industry competitors. Its dividend characteristics are also positive, with a steady, ten-year history of yearly raises.

Still, the report notes points for investor awareness. The company’s financial condition score is a middle 3, mainly because of a high debt-to-equity ratio and low short-term liquidity ratios, like a current ratio below 1. While the acceptable Debt/FCF ratio adds perspective, this is something quality investors would watch. Valuation seems reasonable, trading close to both industry and wider market averages, although its higher profitability might support this price.

Investment Case for the Quality Investor

For an investor using a quality approach, Broadridge makes a strong argument. Its necessary function in the capital markets, processing proxy materials, enabling trades, and supplying key infrastructure, suggests a business with high switching costs and repeat revenue, matching the qualitative "competitive advantage" the strategy looks for. The numerical screen verifies this with excellent scores on ROIC and profit quality, measures that are difficult to manipulate and indicate true operational strength.

The steady increase in revenue, EBIT, and dividends describes a mature but still-growing enterprise. While the balance sheet holds a significant amount of debt, its form seems acceptable compared to the company’s strong cash production, a key difference for quality screens that emphasize debt repayment ability over total debt amounts.

Finding More Quality Prospects

Broadridge Financial Solutions acts as a leading example of the kind of firm the Caviar Cruise screen is built to find. Investors wanting to use this method to locate other possible quality holdings can run the screen themselves to view the complete list of passing companies.

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Disclaimer: This article is for information and learning only. It is not a suggestion to buy, sell, or keep any security, including Broadridge Financial Solutions, Inc. (BR). All investment choices carry risk, including the possible loss of the original amount invested. Investors should perform their own complete investigation and due diligence or speak with a qualified financial advisor before making any investment choices.