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3 Technology Services Stocks Worth a Look Amid Coronavirus Woes
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Coronavirus-led lockdowns and social distancing have led to remote working model, thereby increasing dependency on technology and 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.
Thomson Reuters Corporation (TRI - Free Report) , IQVIA Holdings Inc. (IQV - Free Report) and Aptiv PLC (APTV - Free Report) are some stocks, which are likely to gain from the abovementioned industry trends.
Industry Description
Companies in the Zacks Technology Services industry are engaged in manufacturing, developing and designing of 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.
3 Trends Shaping the Future of Technology Services Industry
Remote Working ModelBoosts Industry Prospects: The industry’s growth is expected to accelerate in the days ahead on increasing number of remote workers in the wake of the coronavirus crisis-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 adoptable hybrid solutions. Notably, coronavirus-triggered demand for remote working, digital healthcare and online learning solutions has accelerated the adoption of digital transformation offerings among enterprises, which bodes well for the industry.
Increasing Digitization is a Tailwind: Most of the industry participants are in the process of modernizing their traditional legacy-oriented business processes in order to keep themselves updated with evolving IT services. The aim is to integrate synergies of emerging technologies including cloud, IoT, AI and analytics. Moreover, increasing Internet penetration in the emerging markets, particularly across Asia-Pacific, is a tailwind.
Talent Cost and Shortage Remain Concerns: Increasing spend on acquiring skilled talent, and restructuring initiatives involving modernization of IT-service infrastructure are leading to higher debt levels, R&D, and sales & marketing expenses. Furthermore, increasing U.S. protectionism continues to mar the industry’s prospects, as traditional IT services providers are significantly exposed to H1-B visa issuance. Markedly, coronavirus-led economic downturn has triggered layoffs and pay cuts, which are likely to lead to termination of H1-B visas and remain an overhang for some time now.
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 #126. This rank 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 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 46.6%.
Despite the bleak prospects, we present a few stocks that investors can retain in their portfolio. But before that let’s take a look at the industry’s recent stock market performance and current valuation.
Industry’s Performance
The Zacks Technology Services industry has outperformed the broader Zacks Business Services sector but underperformed the Zacks S&P 500 composite over the past year.
The industry has declined 12.5% over this period compared with 14.2% decline of the broader sector. The Zacks S&P 500 composite has risen 8.2% in the said time frame.
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 82.94X compared with the S&P 500’s 13.84X and the sector’s 15.27X.
Over the past two years, the industry has traded as high as 92.19X, as low as 9.13X and at the median of 15.45X, as the charts below show.
EV-to-EBITDA
3 Technology Services Stocks to Keep a Close Eye On
Thomson Reuters: This Canada-based company provides news and business information services to professionals in the United States, Other Americas, Europe, the Middle East, Africa, and the Asia-Pacific. Despite the COVID-19 induced market uncertainties, Thomson Reuters continues to witness top-line growth on the back of increase in both recurring and transactions revenues. Improvement in operational performance, reduction in expenses, higher revenues and COVID-19-related cost mitigation efforts have been aiding the company’s bottom line. The company also enjoys higher cash flows from operations.
The Zacks Consensus Estimate for current-year EPS has improved 0.6% in the past 60 days. The stock has gained 18% over the past six months.
Price & Consensus: TRI
Aptiv: This Ireland-based company designs, manufacturers, and sells vehicle components worldwide. Despite the unfavorable impact of coronavirus outbreak on global vehicle production, the company is well positioned to leverage on growing electrification, connectivity and autonomy trends in the rapidly evolving automotive sector. The company has ramped up investments in advanced technology and collaborations to make the most of the opportunities offered by the automotive sector. Buyouts have been helping in expanding market presence.
The Zacks Consensus Estimate for current-year EPS has improved 34.9% in the past 60 days. The stock has gained 55.1% over the past six months.
Price & Consensus: APTV
IQVIA Holdings: This 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. The company enjoys a solid technological suite. This is expected to supplement the company’s growth amid coronavirus-induced dependency on technology. Further, the company’s efforts to help clients gain a deep understanding of the healthcare system and its related processing by providing access to real-world data is appreciable. With increasing presence in emerging markets, IQVIA Holdings should benefit from growth opportunities in the life sciences industry. Consistent share buybacks boost investor confidence and positively impact earnings per share. Notably, the company’s raised full-year 2020 guidance indicates that it has solid growth potential.
The Zacks Consensus Estimate for current-year EPS has improved 2.1% in the past 60 days. The stock has gained 18.2% over the past six months.
Price & Consensus: IQV
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, SherazMian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
Image: Bigstock
3 Technology Services Stocks Worth a Look Amid Coronavirus Woes
Coronavirus-led lockdowns and social distancing have led to remote working model, thereby increasing dependency on technology and 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.
Thomson Reuters Corporation (TRI - Free Report) , IQVIA Holdings Inc. (IQV - Free Report) and Aptiv PLC (APTV - Free Report) are some stocks, which are likely to gain from the abovementioned industry trends.
Industry Description
Companies in the Zacks Technology Services industry are engaged in manufacturing, developing and designing of 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.
3 Trends Shaping the Future of Technology Services Industry
Remote Working Model Boosts Industry Prospects: The industry’s growth is expected to accelerate in the days ahead on increasing number of remote workers in the wake of the coronavirus crisis-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 adoptable hybrid solutions. Notably, coronavirus-triggered demand for remote working, digital healthcare and online learning solutions has accelerated the adoption of digital transformation offerings among enterprises, which bodes well for the industry.
Increasing Digitization is a Tailwind: Most of the industry participants are in the process of modernizing their traditional legacy-oriented business processes in order to keep themselves updated with evolving IT services. The aim is to integrate synergies of emerging technologies including cloud, IoT, AI and analytics. Moreover, increasing Internet penetration in the emerging markets, particularly across Asia-Pacific, is a tailwind.
Talent Cost and Shortage Remain Concerns: Increasing spend on acquiring skilled talent, and restructuring initiatives involving modernization of IT-service infrastructure are leading to higher debt levels, R&D, and sales & marketing expenses. Furthermore, increasing U.S. protectionism continues to mar the industry’s prospects, as traditional IT services providers are significantly exposed to H1-B visa issuance. Markedly, coronavirus-led economic downturn has triggered layoffs and pay cuts, which are likely to lead to termination of H1-B visas and remain an overhang for some time now.
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 #126. This rank 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 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 46.6%.
Despite the bleak prospects, we present a few stocks that investors can retain in their portfolio. But before that let’s take a look at the industry’s recent stock market performance and current valuation.
Industry’s Performance
The Zacks Technology Services industry has outperformed the broader Zacks Business Services sector but underperformed the Zacks S&P 500 composite over the past year.
The industry has declined 12.5% over this period compared with 14.2% decline of the broader sector. The Zacks S&P 500 composite has risen 8.2% in the said time frame.
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 82.94X compared with the S&P 500’s 13.84X and the sector’s 15.27X.
Over the past two years, the industry has traded as high as 92.19X, as low as 9.13X and at the median of 15.45X, as the charts below show.
EV-to-EBITDA
3 Technology Services Stocks to Keep a Close Eye On
We are presenting three stocks that carry a Zacks Rank #3 (Hold) and are well positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Thomson Reuters: This Canada-based company provides news and business information services to professionals in the United States, Other Americas, Europe, the Middle East, Africa, and the Asia-Pacific. Despite the COVID-19 induced market uncertainties, Thomson Reuters continues to witness top-line growth on the back of increase in both recurring and transactions revenues. Improvement in operational performance, reduction in expenses, higher revenues and COVID-19-related cost mitigation efforts have been aiding the company’s bottom line. The company also enjoys higher cash flows from operations.
The Zacks Consensus Estimate for current-year EPS has improved 0.6% in the past 60 days. The stock has gained 18% over the past six months.
Price & Consensus: TRI
Aptiv: This Ireland-based company designs, manufacturers, and sells vehicle components worldwide. Despite the unfavorable impact of coronavirus outbreak on global vehicle production, the company is well positioned to leverage on growing electrification, connectivity and autonomy trends in the rapidly evolving automotive sector. The company has ramped up investments in advanced technology and collaborations to make the most of the opportunities offered by the automotive sector. Buyouts have been helping in expanding market presence.
The Zacks Consensus Estimate for current-year EPS has improved 34.9% in the past 60 days. The stock has gained 55.1% over the past six months.
IQVIA Holdings: This 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. The company enjoys a solid technological suite. This is expected to supplement the company’s growth amid coronavirus-induced dependency on technology. Further, the company’s efforts to help clients gain a deep understanding of the healthcare system and its related processing by providing access to real-world data is appreciable. With increasing presence in emerging markets, IQVIA Holdings should benefit from growth opportunities in the life sciences industry. Consistent share buybacks boost investor confidence and positively impact earnings per share. Notably, the company’s raised full-year 2020 guidance indicates that it has solid growth potential.
The Zacks Consensus Estimate for current-year EPS has improved 2.1% in the past 60 days. The stock has gained 18.2% over the past six months.
Price & Consensus: IQV
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, SherazMian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
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