CBIZ (CBZ +0.94%), a company that provides accounting, benefits, and financial advisory services for organizations and individuals, has been as steady as they come in recent years, outperforming the S&P 500 in four of the past five years with an annualized return of 25.8% over that time period. That type of performance will grab investors' attention, particularly in a time of market volatility.
CBIZ delivered solid earnings in 2019 and posted a return of 36.8%, which again beat the S&P 500. The stock had been up in 2020 year-to-date until the coronavirus-fueled sell-off. But that aside, there's good reason to think it should continue to outperform.
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Acquisition mode
CBIZ, based in Cleveland, provides financial offerings to businesses and individuals including accounting, tax, financial advisory, government healthcare consulting, risk advisory, and valuation services. It also has a benefits and insurance line of services, which provides group health benefits consulting, property and casualty insurance, retirement plan consulting, payroll, and human resources consulting. The company serves primarily small and mid-sized companies, with a sharp focus on delivering cost reductions to clients through a proprietary platform that's more integrated, customizable and flexible than its competitors.
In 2019, CBIZ posted revenue of $948.4 million, an increase of 3% over the previous year. Earnings per share was up 16.5% for the year to $1.27, while net income increased 15.4% to $71 million. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) was $120.6 million at the end of 2019, up from $109.1 million the year before. Revenue generation was better in the second half of the year than the first half. Revenue was up 6.9% in the third quarter and 2.1% in the fourth quarter year-over-year.
The company has had solid growth, but it was boosted by a spate of acquisitions. It acquired six companies in 2019 and three more so far in 2020. The acquisitions were designed to help it gain scale and enhance and deepen its existing services to expand its client base and attract larger clients. Specifically, CBIZ bought a payroll provider, forensic accounting firm, investment advisor, benefits provider, and consulting firm.
The buys contributed $17.4 million to the company's revenue last year, said CEO Jerome Grisko in the fourth-quarter earnings call.
Room to grow
This year, CBIZ has closed on three more acquisitions, which are expected to add approximately $6.2 million of annualized revenue. One is an insurance agency and another is a pension plan sponsor. The third is Sunshine Systems, which provides the resources and expertise to bolster CBIZ's new human capital technology platform, which it rolled out last year. This platform will allow CBIZ to provide payroll and human resources services to larger, more complex companies.
The acquisition strategy seems to be focused on expanding the companyʻs capacity and expanding its footprint. And the company is not done, as the pipeline of potential acquisition candidates is full and includes larger companies than it has targeted in the past.
"While it's too early to predict if and when those transactions may close, we have the resources, processes, capacity and desire to increase the number of transactions that we add each year and, if the right opportunities present themselves, the size of those transactions as well," Grisko said on the earnings call.
As of Dec. 31, 2019, CBIZ had $288 million of unused borrowing capacity.
"With $120 million of Adjusted EBITDA and $288 million of unused financing capacity, we have the access to capital to make strategic acquisitions and to continue to conduct share repurchases. We continue to make investments in our business that will enhance our capabilities to provide exceptional services and solutions to our clients, and further strengthen our market presence," Grisko added.
Positive earnings outlook
CBIZ expects continued growth in 2020 with revenue growth in the range of 5% to 7% overall and earnings-per-share growth in the 10% to 12% range. It's in a market, consulting services, that outperformed the market last year and is expected to grow over the next five years. The company is fairly valued with a P/E ratio of around 21, and it has the resources and scale to drive continued growth -- as it has for the past five years. That type of steady, consistent performance looks pretty good right now in a volatile market.
