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3 Stocks to Watch From the Challenging Computer-Services Industry
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The Zacks Computer - Services industry has been facing the brunt of pandemic-induced disruptions. The recovery is still significantly weak compared with the pre-pandemic level. However, increased adoption and success of the work-from-home trend are helping to cater to the increasing demand for cloud-enabled software solutions. The rising adoption of digital transformative techniques in healthcare and financial services remains the silver lining for these industry participants. CACI International (CACI - Free Report) , Perficient (PRFT - Free Report) and CSG Systems (CSGS - Free Report) are well-positioned to benefit from the above-mentioned positives. The growing adoption of cyber security solutions, stringent regulatory requirements, digital healthcare and the need for business automation solutions should continue to drive the industry.
Industry Description
The Zacks Computer - Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include national security solutions, business support solutions, and systems engineering as well as software application development solutions. The industry participants cater to varied end markets and customers including intelligence, defense, U.S. government agencies, communications, banking, financial services, insurance, healthcare, as well as media and entertainment. Consultancy companies in the industry are helping clients in their ongoing digital transformation. They are providing end-to-end services, including application development, integration and maintenance; technology infrastructure management; and business process services.
3 Computer-Services Industry Trends to Watch Out For
Remote Work & Online Learning Trends Boost Prospects: The industry’s growth is expected to accelerate in the days ahead on increasing number of remote workers in the wake of 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, as well as easily adoptable hybrid solutions. Coronavirus-induced remote working has led to increased demand for cloud and cost-efficient business support solutions, as well as other digital monetization solutions, which bode well for the industry.
Growing Cyber Attacks is a Tailwind: Increasing number of cyber-attacks and related security risks are expected to keep the industry’s momentum alive. Government agencies are ideal targets for cyber-attacks, as they are entrusted with sensitive information. Therefore, the growing need for cyber security solutions and services in critical areas like defense, intelligence and civilian agencies of the U.S. government bodes well for the industry players.
Regulatory Compliance Drives Demand: The companies in this industry should benefit from increasingly complex network systems, and sensitive information environments in which governments as well as businesses operate. The industry participants are keeping pace with global regulatory and business practice requirements, thereby helping customers incorporate the best practices while complying with governmental and industry norms.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #190, which places it in the bottom 23% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bearish 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 industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group’s earnings growth potential. Since Aug 31, 2021, the industry’s earnings estimates for 2022 have moved down 7.4%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Beats Sector, Lags S&P 500
The Zacks Computer – Services industry has outperformed the broader Zacks Computer And Technology sector but lags the S&P 500 Index over the past year.
The industry has returned 2.6% over this period compared with the S&P 500’s increase of 8.4% and the broader sector’s decline of 2.5%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer stocks, we see that the industry is currently trading at 15.35X compared with the S&P 500’s 18.57X and sector’s forward-12-month P/E of 21.94X.
Over the last five years, the industry has traded as high as 25.16X, as low as 13.67X and at the median of 19.20X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
3 Computer-Services Stocks to Watch Right Now
CSG Systems: This Colorado-based SaaS platform provider is benefiting from its cloud-first architecture and customer-centric approach.
CSG is riding on an expanding clientele driven by the strong adoption of its Revenue Management solution.
The Zacks Consensus Estimate for CSG’s 2022 earnings has declined 1.2% to $3.56 per share over the past 30 days. The stock has rallied 40.1% year to date.
Price and Consensus: CSGS
CACI International: This Arlington, VA-based IT applications and infrastructure solutions provider has been benefiting from new business wins and organic expansions. The company has a large pipeline of new projects and continues to win more deals at regular intervals. Furthermore, having the government as a big client lends stability to its business and moderates fluctuations in revenues.
This Zacks Rank #2 company continues to generate higher cash flows, mainly driven by growth in billing and collection processes as well as its Master Accounts Receivable Purchase Agreement. CACI continues to expect accelerating organic revenue growth and margin expansion throughout fiscal 2022.
The Zacks Consensus Estimate for its fiscal 2022 earnings has been steady at $18.30 per share over the past 30 days. The stock has risen 15.9% year to date.
Price and Consensus: CACI
Perficient – This Zacks Rank #3 company is riding on an expanding customer base. Strong demand for Perficient’s global delivery model (40% of delivery resources are offshore) has been a key catalyst. Markedly, in fourth-quarter 2021, the company booked 98 deals greater than $500K compared with 70 deals in the year-ago quarter.
The consensus mark for Perficient’s 2022 earnings has moved up 5.7% to $4.28 per share over the past 30 days. The stock has risen 211.8% year to date.
Price and Consensus: PRFT
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3 Stocks to Watch From the Challenging Computer-Services Industry
The Zacks Computer - Services industry has been facing the brunt of pandemic-induced disruptions. The recovery is still significantly weak compared with the pre-pandemic level. However, increased adoption and success of the work-from-home trend are helping to cater to the increasing demand for cloud-enabled software solutions. The rising adoption of digital transformative techniques in healthcare and financial services remains the silver lining for these industry participants. CACI International (CACI - Free Report) , Perficient (PRFT - Free Report) and CSG Systems (CSGS - Free Report) are well-positioned to benefit from the above-mentioned positives. The growing adoption of cyber security solutions, stringent regulatory requirements, digital healthcare and the need for business automation solutions should continue to drive the industry.
Industry Description
The Zacks Computer - Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include national security solutions, business support solutions, and systems engineering as well as software application development solutions. The industry participants cater to varied end markets and customers including intelligence, defense, U.S. government agencies, communications, banking, financial services, insurance, healthcare, as well as media and entertainment. Consultancy companies in the industry are helping clients in their ongoing digital transformation. They are providing end-to-end services, including application development, integration and maintenance; technology infrastructure management; and business process services.
3 Computer-Services Industry Trends to Watch Out For
Remote Work & Online Learning Trends Boost Prospects: The industry’s growth is expected to accelerate in the days ahead on increasing number of remote workers in the wake of 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, as well as easily adoptable hybrid solutions. Coronavirus-induced remote working has led to increased demand for cloud and cost-efficient business support solutions, as well as other digital monetization solutions, which bode well for the industry.
Growing Cyber Attacks is a Tailwind: Increasing number of cyber-attacks and related security risks are expected to keep the industry’s momentum alive. Government agencies are ideal targets for cyber-attacks, as they are entrusted with sensitive information. Therefore, the growing need for cyber security solutions and services in critical areas like defense, intelligence and civilian agencies of the U.S. government bodes well for the industry players.
Regulatory Compliance Drives Demand: The companies in this industry should benefit from increasingly complex network systems, and sensitive information environments in which governments as well as businesses operate. The industry participants are keeping pace with global regulatory and business practice requirements, thereby helping customers incorporate the best practices while complying with governmental and industry norms.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #190, which places it in the bottom 23% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bearish 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 industry’s position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group’s earnings growth potential. Since Aug 31, 2021, the industry’s earnings estimates for 2022 have moved down 7.4%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Beats Sector, Lags S&P 500
The Zacks Computer – Services industry has outperformed the broader Zacks Computer And Technology sector but lags the S&P 500 Index over the past year.
The industry has returned 2.6% over this period compared with the S&P 500’s increase of 8.4% and the broader sector’s decline of 2.5%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer stocks, we see that the industry is currently trading at 15.35X compared with the S&P 500’s 18.57X and sector’s forward-12-month P/E of 21.94X.
Over the last five years, the industry has traded as high as 25.16X, as low as 13.67X and at the median of 19.20X, as the chart below shows.
Forward 12-Month Price-to-Earnings (P/E) Ratio
3 Computer-Services Stocks to Watch Right Now
CSG Systems: This Colorado-based SaaS platform provider is benefiting from its cloud-first architecture and customer-centric approach.
This Zacks Rank #2 (Buy) company’s solutions cater to varied sectors, including telecom, broadband, cable media, retail, healthcare, financial services, insurance and government. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CSG is riding on an expanding clientele driven by the strong adoption of its Revenue Management solution.
The Zacks Consensus Estimate for CSG’s 2022 earnings has declined 1.2% to $3.56 per share over the past 30 days. The stock has rallied 40.1% year to date.
Price and Consensus: CSGS
CACI International: This Arlington, VA-based IT applications and infrastructure solutions provider has been benefiting from new business wins and organic expansions. The company has a large pipeline of new projects and continues to win more deals at regular intervals. Furthermore, having the government as a big client lends stability to its business and moderates fluctuations in revenues.
This Zacks Rank #2 company continues to generate higher cash flows, mainly driven by growth in billing and collection processes as well as its Master Accounts Receivable Purchase Agreement. CACI continues to expect accelerating organic revenue growth and margin expansion throughout fiscal 2022.
The Zacks Consensus Estimate for its fiscal 2022 earnings has been steady at $18.30 per share over the past 30 days. The stock has risen 15.9% year to date.
Price and Consensus: CACI
Perficient – This Zacks Rank #3 company is riding on an expanding customer base. Strong demand for Perficient’s global delivery model (40% of delivery resources are offshore) has been a key catalyst. Markedly, in fourth-quarter 2021, the company booked 98 deals greater than $500K compared with 70 deals in the year-ago quarter.
The consensus mark for Perficient’s 2022 earnings has moved up 5.7% to $4.28 per share over the past 30 days. The stock has risen 211.8% year to date.
Price and Consensus: PRFT
