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2 Stocks to Buy From the Prospering Computer-Services Industry

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The Zacks Computer - Services industry is riding on increased adoption of the work-from-home trend, which is 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 the industry participants. CGI Group (GIB - Free Report) and Perficient (PRFT - 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. However, the industry has been facing the brunt of pandemic-induced disruptions. The recovery is still significantly weak compared with the pre-pandemic level.

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 Solid Prospects

The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #74, which places it in the top 30% 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 bullish 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 two to one.

The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Nov 31, 2021, the Zacks Consensus Estimate for the industry’s 2022 earnings has moved up 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 & S&P 500

The Zacks Computer – Services industry has outperformed the broader Zacks Computer And Technology sector as well as the S&P 500 Index over the past year.

The industry has declined 4.2% over this period compared with the S&P 500’s decrease of 11% and the broader sector’s decline of 25.1%.

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 12.13X compared with the S&P 500’s 16.73X and sector’s forward-12-month P/E of 20.12X.

Over the last five years, the industry has traded as high as 20.67X, as low as 11.85X and at the median of 16.65X, as the chart below shows.

Forward 12-Month Price-to-Earnings (P/E) Ratio

2 Computer-Services Stocks to Buy Right Now

CGI Group: This Canada-based information technology and business consulting services provider is benefiting from an expanding clientele and accretive acquisition.

This Zacks Rank #2 (Buy) company delivers a full range of services, including business consulting, strategic IT and systems integration, managed IT and business process services, and intellectual property to help clients accelerate digitization. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for CGI’s fiscal 2022 earnings has been steady at $4.76 per share over the past 30 days. The stock has lost 9.3% year to date.

Price and Consensus: GIB

 

 

Perficient – This Zacks Rank #2 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 first-quarter 2022, the company booked 124 deals worth more than $500K compared with 92 deals in the year-ago quarter.

The consensus mark for Perficient’s 2022 earnings has been steady at $4.31 per share over the past 30 days. The stock has lost 27.6% year to date.

Price and Consensus: PRFT



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