3 Outsourcing Stocks to Consider Despite Industry Challenges

About the Industry

Outsourcing involves delegating a company's internal operations to external resources or third-party contractors to enhance operational efficiency. Within the Zacks Outsourcing sector, one can find companies that provide human capital, business management and IT solutions, primarily catering to small and medium-sized enterprises. These services encompass a broad spectrum, including HR support, payroll management, administration of benefits, retirement planning and insurance services. Certain firms excel in delivering business process services, with a strong focus on transaction processing, analytics and global automation solutions. This outsourcing approach empowers businesses to concentrate on their core competencies, while external experts manage these critical functions.

What's Shaping the Future of the Outsourcing Industry?

Next-Gen Technology Transformation: Companies continue to modernize applications, migrate workloads to the cloud and invest in AI, creating opportunities for technology service providers in cloud, blockchain, cybersecurity and AI. These technologies have enhanced customer experience by addressing inquiries using tools without human intervention. Per a Gartner report, global IT spending is expected to increase 14.2% year over year in 2026, with AI infrastructure, cloud platforms and intelligent applications being vital for growth. Moving on, an ISG report states that during the first half of 2026, annual contract value in the technology services industry gained 35% year over year, led by solid growth in infrastructure-as-a-service, which surged 66% during the first half of the year. It signals that enterprises are heavily relying on external providers to support cloud infrastructure and digital transformation, creating opportunities for outsourcing companies.

Rising Importance of Specialized Skills: The need to look for outsourcing partners for capabilities that are hard or expensive to develop internally is increasing. Per a KPMG survey, managed services are a strategic focus for 99% of organizations, with nearly half ranking them as their investment priority. About 45% of respondents cited technology innovation as the domain wherein managed services have a crucial impact, followed by business-model transformation at 29%. These findings hint that outsourcing relationships are being weighed on innovation, resilience and transformation rather than cost savings.

Efficiency at the Cost of Falling Labor Demand: AI is creating several opportunities at the cost of reducing demand for labor-intensive services and undermining conventional per-employee pricing models. Per an ISG report, 70% of respondents expect greater innovation from providers, although only 40% anticipate outsourced staffing to rise. However, AI adoption remains relatively early, with 43% of respondents utilizing it to boost efficiency, while 14% are achieving outcomes driven by AI. Therefore, it is evident that providers with a strong grasp of AI will find opportunities. However, it will raise pressure on labor-intensive delivery models as customers demand greater output with fewer resources.

Zacks Industry Rank Indicates Sluggish Near-Term Prospects

The Zacks Outsourcing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #212. This rank places it in the bottom 15% of 248 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates continued underperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock market performance and current valuation.

Industry & Sector Plummets, S&P 500 Rallies Up

Over the past year, the Zacks Outsourcing industry and the broader Zacks Business Services sector declined while the Zacks S&P 500 composite witnessed lofty growth.

The industry and the broader sector have declined 15.9% and 17.3%, respectively, while the Zacks S&P 500 composite has gained 20.1%.

1-Year Price Performance

Industry Trades Pricier Than Sector & S&P 500

On the basis of forward 12-month price-to-earnings (P/E), commonly used for valuing outsourcing stocks, the industry is currently trading at 20.30X compared with the S&P 500’s 19.82X and the sector’s 17.81X.

In the past five years, the industry has traded as high as 33.22X and as low as 4.94X, with the median being 17.00X, as the charts below show.

Price-to-Forward 12 Months’ P/E Ratio

3 Outsourcing Stocks Poised for Growth

TriNet: This company offers full-service human resources solutions for small and medium-sized businesses. TriNet’s favorable prospects are driven by improving customer retention, solid insurance profitability and investments to achieve sustainable growth.

In the second quarter of 2026, attrition improved 36% year over year, led by a 58% decline in attrition related to health fee pricing and a 47% fall in attrition related to service. During the second-quarter 2026 earnings call, Michael Simonds, the CEO, sounded optimistic, as these enhancements set the company on the path to long-term retention rates higher than the historic 80%.

TNET witnessed significant improvement in customer experience following the launch of TriNet Assistant, as evidenced by 50% of customer-initiated chat sessions being addressed by this AI-backed technology. The company’s broker channel continues to demonstrate growth.

During the second quarter of 2026, the broker channel represented 32% of new sales, with Requests for Proposals rising 54% year over year. Strengthening broker partnerships is expected to generate leads aligned with the target customers.

Management is optimistic about the Cocoon buyout and its ability to address leave of absence, identified as a major issue for customers. Prudent expense management and solid insurance performance have bolstered earnings, enabling the company to hike full-year earnings outlook.

The Zacks Consensus Estimate for the company’s 2026 EPS of $4.82 has moved up 2.3% over the past 30 days. TNET shares have gained 46.4% over the past three months.

TNET currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

Adecco: This company offers workforce and staffing solutions by connecting job seekers with employment opportunities. AHEXY’s growth prospects are supported by growing organic growth, market-share gains and improving profitability.

The company’s organic revenue growth on a trading-days-adjusted basis was 5.6% year over year during the second quarter of 2026. Also, it gained 160 basis points in market share compared with key competitors. With a healthy gross margin of 18.6% and EBITA rising 21% year over year on an organic constant-currency basis on the back of solid pricing, cost discipline and higher volumes, the company reported profitable growth.

AI is a vital growth catalyst supporting the company to serve clients, candidates and enhance productivity. Adecco made solid progress on the agentic AI front as it achieved its initial year-end target of 50% of Adecco Global Business Unit (GBU) revenues, enabled by AI agents during the second quarter of 2026. Visible improvements were noted as the company witnessed a 10% improvement in overall fill rate, a 40% decline in time to submit and 25-35% productivity benefits via recruiter time saved.

Akkodis, AHEXY’s GBU, returned to growth, driven by strong aerospace and defense demand. Adecco aims to strengthen the business, propelling change and positioning Akkodis for profitable growth in attractive end markets. A combination of expense management, gross margin enhancements and market share capture leveraging Akkodis can support AHEXY’s earnings growth, fueling investor confidence.

The Zacks Consensus Estimate for the company’s 2026 EPS of $1.41 increased from $1.35 over the past 30 days. AHEXY shares have gained 38% over the past three months.

AHEXY currently has a Zacks Rank of #3.

Capgemini: This company assists businesses in transforming operations by leveraging technology and AI. Capgemini’s long-term growth is anticipated to benefit from increasing enterprise spending on AI-driven transformation, technology modernization and intelligent operations.

During the first half of 2026, the company increased its revenues by 11.3% year over year at constant currency, exceeding the market and gaining market share. During the second quarter of 2026, the company’s bookings climbed 9.2% year over year and the book-to-bill ratio was 1.07, reflecting solid commercial momentum. This performance demonstrates the strength of the company’s positioning and rising relevance as organizations rapidly move from AI ambition to AI execution at scale.

Management is optimistic about the company’s growth trajectory, resulting in raising the revenue growth target for 2026 to an 8.5-9% constant-currency growth rate from the preceding quarter’s 6.5-8.5%.

WNS and Cloud4C buyouts were vital in improving the Financial Services sector in the first half of 2026 and sectors, including consumer goods that performed softly during the first quarter, showed visible improvements. Positive contributions in North America, the U.K. and Ireland and the Asia Pacific regions were reported that were largely facilitated by these acquisitions.

Margin expansion acts as another potential upside driver, as Fit-for-Growth benefits should begin to be realized in the second half of the year, and increase further in 2027. Strength across defense and security, accompanied by improving demand in the Continental European region, could support profitability, boosting investor confidence.

The Zacks Consensus Estimate for the company’s 2026 EPS of $2.94 has been unchanged over the past 30 days. CGEMY shares have risen marginally over the past three months.

CGEMY currently has a Zacks Rank of #3.

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This article originally published on Zacks Investment Research (zacks.com).

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