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3 Technology Services Stocks to Watch Despite Industry Challenges
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Ongoing digitization, increasing dependency on technology and initiatives to diversify technology services have been boosting prospects of the Zacks Technology Services industry. Growth opportunities from robust adoption of emerging technologies should offset challenges arising from U.S. protectionism, global regulatory uncertainties and security issues.
IQVIA Holdings Inc. (IQV - Free Report) , Seagate Technology Holdings plc (STX - Free Report) and Blucora, Inc. are some stocks, which are likely to gain from the abovementioned industry trends.
Industry Description
The Zacks Technology Services industry comprises companies that are engaged in manufacturing, developing and designing an array of software support, data processing, computing hardware and communications equipment. These include integrated powertrain technologies, advanced analytics, technology solutions and contract research services, semiconductor packaging and interconnect technologies, collaboration software, specialty printers, and data acquisition and analysis systems. The industry includes consumer as well as business-oriented products and services. It comprises companies with diversified end-markets and customer base. Some industry participants also provide advanced analytics, clinical research services, data storage technology and solutions, technology-enabled financial solutions to consumers and small business owners.
What's Shaping the Future of the Technology Services Industry?
Digitization Wave is a Tailwind: Most industry participants are in the process of modernizing their traditional legacy-oriented business processes to keep themselves updated with evolving IT services. The aim is to integrate synergies of emerging technologies including cloud, Internet of Things, Artificial Intelligence and analytics. Moreover, increasing Internet penetration in the emerging markets, particularly across the Asia-Pacific, is a tailwind.
New Normal Boosts Industry Prospects: The industry’s growth is expected to accelerate in the days ahead on the increasing number of remote workers in the wake of the coronavirus-induced work-from-home wave. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures that will enable them to provide flexible and easily adaptable hybrid solutions. Notably, coronavirus-triggered demand for remote working, digital healthcare and online learning solutions has expedited the adoption of digital transformation offerings among enterprises, which bodes well for the industry.
Adoption of Multi-Cloud Model:Growing uptake of the multi-cloud model to achieve better scalability and attain improved resource utilization is also expanding the scope of the industry participants. Cloud and hardware/software virtual technologies are anticipated to favorably impact the industry. As growth and investment opportunities in developed countries continue to slow down, we believe that emerging economies will play a crucial role in the days ahead.
Talent Cost Woes: Rising spending on acquiring skilled talent and restructuring initiatives involving modernization of the IT-service infrastructure are causing higher debt levels, R&D, and sales & marketing expenses.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #172. This rank places it in the bottom 33% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The sell-side analysts covering the companies in this industry have been decreasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has decreased 90.2%.
Despite the cloudy prospects, we present a few stocks that investors can buy or retain in their portfolio. But before that let’s take a look at the industry’s recent stock market performance and its current valuation.
Industry Underperforms Sector and S&P 500
The Zacks Technology Services industry has lagged the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 28.2% over this period compared with 24.9% decline of the broader sector. In contrast, the Zacks S&P 500 composite has risen 27.6%.
One-Year Price Performance
Industry's Current Valuation
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing technology services stocks, the industry is currently trading at 18.87X compared with the S&P 500’s 15.68X and the sector’s 16.77X.
Over the past year, the industry has traded as high as 20.21X, as low as 11.88X and at the median of 17.11X as the charts below show.
EV-to-EBITDA
3 Technology Services Stocks to Keep a Close Eye on
Seagate’s top line has been benefiting from solid demand for its solutions in the mass capacity markets, distribution channel and record sales of the company’s high capacity nearline. Robust cloud data center demand and a recovering enterprise market are driving demand for the company’s mass capacity storage solutions, along with increasing investments in digital transformation by business enterprises. Further, increasing implementation of AI and data analytics solutions as well as strength in the video and image applications market is leading to strong uptake of the company’s nearline and mission-critical drives. Ongoing operational execution has been aiding the bottom line.
The Zacks Consensus Estimate for Seagate’s 2021 EPS has improved 7.1% in the past 90 days. STX stock has gained 67.8% over the past year.
Price & Consensus: STX
IQVIA Holdings: This Zacks Rank #3 (Hold) North Carolina-based company provides advanced analytics, technology solutions, and contract research services to the life sciences industry in the Americas, Europe, Africa, and the Asia-Pacific.
IQVIA Holdings has a strong healthcare-specific global IT infrastructure, analytics-driven clinical development capabilities, and a robust real-world solutions ecosystem.With an increasing presence in emerging markets, IQVIA Holdings will likely benefit from growth opportunities in the life sciences industry. Consistent share buybacks boost investor confidence and positively impact earnings per share. Further, the company’s raised full-year 2021 guidance indicates that it has solid growth potential. It now expects revenues in the band of $13.775-$13.850 billion compared with the prior projection of $13.55-$13.70 billion. Adjusted earnings per share are expected between $8.85 and $8.95 compared with the prior forecast of $8.70-$8.90. Adjusted EBITDA is anticipated between $2.98 billion and $3.01 billion compared with the prior prediction of $2.95-$3 billion.
The Zacks Consensus Estimate for IQVIA Holdings’ 2021 EPS has improved 0.8% in the past 90 days. IQV stock has gained 52.4% over the past year.
Price & Consensus: IQV
Blucora:This Zacks Rank #3 Texas-based company provides technology-enabled financial solutions to consumers, small business owners, tax professionals, financial advisors, and certified public accounting firms in the United States.
Blucora has been benefiting from continued solid NPS scores, higher client retention rates, improved marketing effectiveness and ARPU strength driven by its broad set of customer offerings. Operational efficiencies and reduction in expenses are aiding Blucora’s bottom line.
The Zacks Consensus Estimate for Blucora’s 2021 EPS has improved 4.9% in the past 90 days. BCOR stock has gained 23.6% over the past year.
Price & Consensus: BCOR
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3 Technology Services Stocks to Watch Despite Industry Challenges
Ongoing digitization, increasing dependency on technology and initiatives to diversify technology services have been boosting prospects of the Zacks Technology Services industry. Growth opportunities from robust adoption of emerging technologies should offset challenges arising from U.S. protectionism, global regulatory uncertainties and security issues.
IQVIA Holdings Inc. (IQV - Free Report) , Seagate Technology Holdings plc (STX - Free Report) and Blucora, Inc. are some stocks, which are likely to gain from the abovementioned industry trends.
Industry Description
The Zacks Technology Services industry comprises companies that are engaged in manufacturing, developing and designing an array of software support, data processing, computing hardware and communications equipment. These include integrated powertrain technologies, advanced analytics, technology solutions and contract research services, semiconductor packaging and interconnect technologies, collaboration software, specialty printers, and data acquisition and analysis systems. The industry includes consumer as well as business-oriented products and services. It comprises companies with diversified end-markets and customer base. Some industry participants also provide advanced analytics, clinical research services, data storage technology and solutions, technology-enabled financial solutions to consumers and small business owners.
What's Shaping the Future of the Technology Services Industry?
Digitization Wave is a Tailwind: Most industry participants are in the process of modernizing their traditional legacy-oriented business processes to keep themselves updated with evolving IT services. The aim is to integrate synergies of emerging technologies including cloud, Internet of Things, Artificial Intelligence and analytics. Moreover, increasing Internet penetration in the emerging markets, particularly across the Asia-Pacific, is a tailwind.
New Normal Boosts Industry Prospects: The industry’s growth is expected to accelerate in the days ahead on the increasing number of remote workers in the wake of the coronavirus-induced work-from-home wave. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures that will enable them to provide flexible and easily adaptable hybrid solutions. Notably, coronavirus-triggered demand for remote working, digital healthcare and online learning solutions has expedited the adoption of digital transformation offerings among enterprises, which bodes well for the industry.
Adoption of Multi-Cloud Model:Growing uptake of the multi-cloud model to achieve better scalability and attain improved resource utilization is also expanding the scope of the industry participants. Cloud and hardware/software virtual technologies are anticipated to favorably impact the industry. As growth and investment opportunities in developed countries continue to slow down, we believe that emerging economies will play a crucial role in the days ahead.
Talent Cost Woes: Rising spending on acquiring skilled talent and restructuring initiatives involving modernization of the IT-service infrastructure are causing higher debt levels, R&D, and sales & marketing expenses.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #172. This rank places it in the bottom 33% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The sell-side analysts covering the companies in this industry have been decreasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has decreased 90.2%.
Despite the cloudy prospects, we present a few stocks that investors can buy or retain in their portfolio. But before that let’s take a look at the industry’s recent stock market performance and its current valuation.
Industry Underperforms Sector and S&P 500
The Zacks Technology Services industry has lagged the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 28.2% over this period compared with 24.9% decline of the broader sector. In contrast, the Zacks S&P 500 composite has risen 27.6%.
One-Year Price Performance
Industry's Current Valuation
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing technology services stocks, the industry is currently trading at 18.87X compared with the S&P 500’s 15.68X and the sector’s 16.77X.
Over the past year, the industry has traded as high as 20.21X, as low as 11.88X and at the median of 17.11X as the charts below show.
EV-to-EBITDA
3 Technology Services Stocks to Keep a Close Eye on
Seagate: This Zacks Rank #2 (Buy) Ireland-based company provides data storage technology and solutions in Singapore, the United States, the Netherlands, and internationally. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Seagate’s top line has been benefiting from solid demand for its solutions in the mass capacity markets, distribution channel and record sales of the company’s high capacity nearline. Robust cloud data center demand and a recovering enterprise market are driving demand for the company’s mass capacity storage solutions, along with increasing investments in digital transformation by business enterprises. Further, increasing implementation of AI and data analytics solutions as well as strength in the video and image applications market is leading to strong uptake of the company’s nearline and mission-critical drives. Ongoing operational execution has been aiding the bottom line.
The Zacks Consensus Estimate for Seagate’s 2021 EPS has improved 7.1% in the past 90 days. STX stock has gained 67.8% over the past year.
Price & Consensus: STX
IQVIA Holdings: This Zacks Rank #3 (Hold) North Carolina-based company provides advanced analytics, technology solutions, and contract research services to the life sciences industry in the Americas, Europe, Africa, and the Asia-Pacific.
IQVIA Holdings has a strong healthcare-specific global IT infrastructure, analytics-driven clinical development capabilities, and a robust real-world solutions ecosystem.With an increasing presence in emerging markets, IQVIA Holdings will likely benefit from growth opportunities in the life sciences industry. Consistent share buybacks boost investor confidence and positively impact earnings per share. Further, the company’s raised full-year 2021 guidance indicates that it has solid growth potential. It now expects revenues in the band of $13.775-$13.850 billion compared with the prior projection of $13.55-$13.70 billion. Adjusted earnings per share are expected between $8.85 and $8.95 compared with the prior forecast of $8.70-$8.90. Adjusted EBITDA is anticipated between $2.98 billion and $3.01 billion compared with the prior prediction of $2.95-$3 billion.
The Zacks Consensus Estimate for IQVIA Holdings’ 2021 EPS has improved 0.8% in the past 90 days. IQV stock has gained 52.4% over the past year.
Blucora:This Zacks Rank #3 Texas-based company provides technology-enabled financial solutions to consumers, small business owners, tax professionals, financial advisors, and certified public accounting firms in the United States.
Blucora has been benefiting from continued solid NPS scores, higher client retention rates, improved marketing effectiveness and ARPU strength driven by its broad set of customer offerings. Operational efficiencies and reduction in expenses are aiding Blucora’s bottom line.
The Zacks Consensus Estimate for Blucora’s 2021 EPS has improved 4.9% in the past 90 days. BCOR stock has gained 23.6% over the past year.
Price & Consensus: BCOR