Issue #133

The real profit is moving into enterprise infrastructure. Here is why EXLService and Genpact are currently undervalued.

The digital transformation of the Fortune 500 has entered a new, more aggressive phase. It’s no longer enough for a company to simply "have data"—they now face an urgent mandate to automate or be left behind. While the headlines are dominated by the giants selling the chips, the real value is being captured by the architects who are re-wiring the global economy’s back office.

The shift is moving away from generic chatbots toward "Agentic AI"—systems that don't just talk, but actually execute complex financial, healthcare, and insurance workflows. This is where the AI revolution meets the bottom line, and where two specific companies are quietly dominating the transition.

👉 One company has evolved into a data science powerhouse, embedding AI into the mission-critical systems of the world’s largest insurers and healthcare providers.

👉 The other is the global leader in process intelligence, turning the messy legacy operations of the world's biggest brands into streamlined, AI-driven engines.

👉 Both are trading at massive discounts relative to their growth, offering a rare "value" entry point into the high-octane world of enterprise AI.

In this edition, we dive into two IT leaders that have successfully pivoted from labor to logic. They aren't just service providers; they are the essential navigators for any enterprise trying to survive the AI era—and their stocks are currently sitting in the bargain bin.

ExlService (NASDAQ: EXLS)

ExlService (NASDAQ: EXLS) is a premier global data analytics and digital operations and solutions company. In an era where "data is the new oil," EXL has successfully transitioned from a traditional business process management (BPM) provider into a powerhouse that embeds advanced AI and machine learning into mission-critical workflows for some of the world's largest corporations.

Business Model and Revenue Streams 📦

EXL’s business model is centered on helping organizations in data-heavy industries—such as insurance, healthcare, and banking—scale their digital operations through high-end analytics and AI-led transformations. The company operates through a diversified structure that ensures high recurring revenue and deep client integration.

Data & AI-Led Revenue: This is the company's primary growth engine, now accounting for approximately 57% of total revenue. This segment focuses on high-value consulting, data engineering, and proprietary AI platforms that help clients automate complex decision-making.

Industry-Specific Operations: EXL generates substantial income by managing core business functions for clients. This is categorized by vertical:

• Insurance: Their largest segment, providing end-to-end claim processing and underwriting support.
• Healthcare and Life Sciences: Focusing on clinical data management and pharmacy benefit analytics.
• Banking & Capital Markets: Managing risk, compliance, and customer experience operations.

Macroeconomic Impact:

Current policies regarding interest rates and global trade have a dual effect on EXL. While high interest rates initially caused some clients to tighten discretionary spending, the ongoing "AI race" has counteracted this, as firms now view EXL’s automation services as a necessity for cost-saving. Furthermore, new labor codes in regions like India (where EXL has a massive delivery footprint) are expected to increase employee costs slightly in 2026, though the company’s shift toward AI-based pricing rather than "headcount-based" pricing is helping to preserve margins.

Recent Performance and Corporate Developments 📈

EXL delivered a robust performance for the full year 2025, capped by a strong fourth quarter that showcased the company's ability to maintain double-digit growth.

Q4 and Full-Year 2025 Highlights: 💰

• Total Revenue: For 2025, revenue reached $2.09 billion, a 13.6% increase year-over-year. Q4 specifically saw revenue of $542.6 million, beating analyst estimates.
• Profitability: Full-year adjusted diluted EPS grew 18% to $1.95, while Q4 adjusted EPS hit $0.50, a 15% increase over the previous year.
• 2026 Guidance: The company issued optimistic guidance for 2026, projecting revenue between $2.275 billion and $2.315 billion (up 9-11%) and adjusted EPS between $2.14 and $2.19.

Strategic Initiatives and Mergers: 🤝

In early 2026, EXL significantly ramped up its shareholder return strategy by authorizing a new $500 million share repurchase program. In March 2026, it entered into an Accelerated Share Repurchase (ASR) agreement for $125 million, signaling management's belief that the stock is currently undervalued. On the technology front, EXL recently unveiled new "Agentic AI" solutions and expanded its partnership with NVIDIA to integrate generative AI more deeply into its EXLerate.ai platform, keeping them at the forefront of the enterprise AI transformation.

Profitability and Fair Value 🎯

EXL is highly profitable with an adjusted operating margin of 19.5% for the full year 2025. Unlike many "growth" tech stocks, EXL maintains a healthy balance sheet with a low debt-to-equity ratio of 0.32 and a high Return on Equity (ROE) of 27.5%.

The "cheap" narrative for EXLS comes from its current valuation relative to its historical growth. Trading at a forward P/E ratio of approximately 17.3x, it sits below many of its peers in the high-end analytics space. With an intrinsic valuation suggesting it may be 20-22% undervalued, the stock is effectively priced as a traditional service provider while delivering the growth of a high-tech AI firm.

Analyst Estimates and Ratings 📊

Consensus Rating: The stock currently holds a "Moderate Buy" or "Buy" consensus. In the last 30 days, despite some price target adjustments following the 2026 guidance, sentiment remains overwhelmingly positive due to the AI-led revenue growth.

Price Target: The average 12-month price target sits at approximately $43.60. With the current share price hovering around $31.00, this represents a significant forecasted upside of over 40%. Top-tier firms like TD Cowen and Stifel Nicolaus have maintained "Buy" ratings even while adjusting targets to account for broader market volatility.

Investor-Focused Takeaway: Is EXLS Right for Your Portfolio?

EXLService represents a disciplined way to play the AI revolution. It offers the stability of a 25-year-old company with the growth trajectory of a modern data science firm. The stock appears particularly attractive for those looking for a "GARP" (Growth at a Reasonable Price) play.

What to Watch in the Near Term: 📈

• Q1 2026 Earnings: Scheduled for release around April 28, 2026, which will confirm if the company is tracking toward its ambitious annual targets.
• AI Monetization: Watch for further updates on "Agentic AI" adoption, as shifting from labor-based to value-based pricing is the key to unlocking higher margins.
• Buyback Execution: The speed at which the company executes its remaining $375 million buyback will be a major indicator of management's confidence in the share price.

Recommendation:

ExlService (EXLS) is a strong candidate for investors seeking exposure to enterprise AI without the extreme volatility of pre-profit tech startups. Its proven ability to generate free cash flow and its aggressive share buyback program provide a solid floor for long-term investors.

Genpact (NYSE: G)

Genpact (NYSE: G) is a global professional services firm that has evolved from a GE spin-off into a leader in "Agentic AI" and digital transformation. While many know it for business process outsourcing, Genpact has aggressively pivoted toward becoming a high-tech intermediary, helping Fortune 500 companies integrate artificial intelligence into their messy, legacy operational systems.

Business Model and Revenue Streams 📦

Genpact’s business model is rooted in process intelligence. They don't just provide software; they provide the "last-mile" expertise to make that software work within complex corporate structures. The company operates through two primary reporting segments:

Core Business Services: This represents the stable foundation of the company, accounting for 76% of total net revenues. It includes traditional managed services in finance, accounting, and supply chain. Even in this "legacy" segment, Genpact is increasingly embedding AI to improve efficiency and maintain high retention rates.

Advanced Technology Solutions: This is the high-growth engine, making up 24% of revenue but growing at a much faster clip (17% year-over-year). This segment focuses on "Agentic AI"—AI agents that can execute tasks independently—and high-end data engineering.

Macroeconomic Impact: In the 2026 economic landscape, Genpact is benefiting from "cost-takeout" mandates. As global central banks maintain a "higher-for-longer" stance on interest rates, companies are under pressure to preserve margins. This environment plays directly into Genpact’s hands, as its value proposition is built on reducing operating costs for its clients through automation.

Recent Performance and Corporate Developments 📈

Genpact finished 2025 on a high note and has entered 2026 with significant momentum, specifically in its AI-native offerings.

2025 Full-Year and Q4 Highlights: 💰

• Total Revenue: Reached $5.08 billion, a 6.6% increase year-over-year.
• Net Income: The company posted $552 million in net income, up 7.6%.
• Dividend Increase: Demonstrating confidence in their cash flow, the Board approved a 10% increase in the quarterly dividend to $0.1875 per share (a ~$0.75 annual yield).
• Earnings Beat: In its most recent Q4 report (February 2026), Genpact delivered an EPS of $0.97, comfortably beating the analyst consensus of $0.93.

Strategic Initiatives and Mergers: 🤝

Genpact has focused on "tuck-in" acquisitions to bolster its digital experience arm, Rightpoint. A notable recent move was the acquisition of Something Digital, an e-commerce agency that strengthens Genpact's ability to handle complex digital storefronts for global brands. Additionally, CEO Balkrishan “BK” Kalra has been vocal about the company’s new "Agentic AI" suite, which has already closed over $200 million in total contract value, proving that their AI pivot is translating into real-world dollars.

Profitability and Fair Value 🎯

Genpact is a cash-flow machine. With an adjusted operating margin of 17.5% and a Return on Equity (ROE) of over 20%, it remains one of the most efficient operators in the IT services space.

From a valuation standpoint, Genpact is arguably "cheap" when compared to the broader tech sector. It currently trades at a trailing P/E ratio of approximately 10.9x, which is a significant discount compared to pure-play software companies. This low multiple suggests the market is still pricing Genpact as a "labor" company rather than a "tech" company, despite nearly half of its revenue now coming from its Data-Tech-AI segment.

Analyst Estimates and Ratings 📊

Consensus Rating: The stock currently holds a "Moderate Buy" or "Hold" consensus. While some analysts remain cautious about the speed of legacy business transitions, there has been a notable shift in sentiment recently. For instance, Citigroup upgraded the stock to a "Strong Buy" in February 2026.

Price Target: The consensus 12-month price target is approximately $47.29. Given the current trading price near $34.34, this represents a potential upside of roughly 37%. High-end targets from bullish analysts reach as far as $50.00.

Investor-Focused Takeaway: Is Genpact Right for Your Portfolio?

Genpact is a classic "defensive growth" play. It offers a combination of a healthy 2.2% dividend yield, aggressive share buybacks, and a front-row seat to the enterprise AI rollout.

What to Watch in the Near Term: 📈

• Q1 2026 Earnings (May 7, 2026): Investors should look for continued growth in the Advanced Technology Solutions segment to see if the AI momentum is accelerating.
• Margin Expansion: Management has guided for a 50-basis point improvement in gross margins for 2026; hitting this target will be crucial for a stock price breakout.
• Agentic AI Adoption: Watch for updates on the total contract value (TCV) of their AI-specific suites, as this is the primary catalyst for a valuation re-rating.

Recommendation:

Genpact (G) is an ideal pick for value-conscious investors who want exposure to AI. Its extremely low P/E ratio provides a "margin of safety," while its growing dividend and 37% projected upside offer a compelling total return profile.

Final Take: The Data Architects and AI Operatives Powering the Enterprise

The AI revolution has moved past the "playground" phase—it’s now about real-world execution. Scaling these models requires two things: data that is clean enough to be useful and processes that are smart enough to be automated.

That’s where ExlService (EXLS) and Genpact (G) stand apart.

📊 ExlService (EXLS) — The Data Intelligence Engine

✔ High-Growth Analytics: Transitioning from a service provider to a data engineering powerhouse.

✔ Sector Dominance: Deeply embedded in the high-barrier insurance and healthcare markets.

✔ Value Play: Trading at a discount to peers while maintaining double-digit revenue growth and aggressive buybacks.

➤ Best for: Investors seeking a high-quality, mid-cap compounder that bridges the gap between traditional operations and advanced data science.

⚙️ Genpact (G) — The Architects of "Agentic AI"

✔ Operational Scale: Managing the core functions of the Fortune 500 with a new focus on AI agents.

✔ Dividend Growth: Offers a growing 2.2% yield and robust cash flow, providing a safety net for investors.

✔ Deep Value: Trading at a near-trough P/E ratio despite a massive pivot toward high-margin AI technology.

➤ Best for: Value-oriented investors looking for a "margin of safety" and defensive exposure to the global enterprise automation trend.

Investor Insight

🧩 Want high-end data analytics and insurance-tech focus? → EXLS

⚙️ Want massive operational scale and a steady dividend yield? → G

Bottom Line:

Artificial intelligence doesn’t scale without a foundation of organized data and efficient workflows.

ExlService builds the intelligence into the data, while Genpact deploys that intelligence into the business process. As the market realizes these aren't just "outsourcers" but the essential mechanics of the AI economy, the current "cheap" valuations won't last.

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Happy Trading
​— Team Premium Stock Alerts