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3 Technology Services Stocks to Capitalize on Amid Coronavirus
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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.
TTEC Holdings, Inc. (TTEC - Free Report) , Trane Technologies plc (TT - Free Report) and Rocket Companies, Inc. (RKT - Free Report) are a few stocks that are likely to gain from the above-mentioned industry trends.
Industry Description
The Zacks Technology Services industry comprises companies, which 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.
4 Trends Shaping the Future of Technology Services Industry
Growing Digitization 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, IoT, AI and analytics. Moreover, increasing Internet penetration in the emerging markets, particularly across the Asia-Pacific, is a tailwind.
Work-From-Home Wave 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 adoptable hybrid solutions. Notably, coronavirus-triggered demand for remote working, digital healthcare and online learning solutions 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 the emerging economies will play a crucial role in the days ahead.
Talent Cost and Shortage Remain a Concern: Rising spend 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. Furthermore, increasing U.S. protectionism continues to mar the industry’s prospects as traditional IT service providers are significantly exposed to H1-B visa issuance. Markedly, the coronavirus-led economic downturn resulted in layoffs and pay cuts, which are likely to induce the termination of H1-B visas, thereby remaining an overhang for some time now.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #189. This rank places it in the bottom 25% 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 revising their estimates downward. Over the past year, the industry’s consensus earnings estimate for the current year has decreased 19%.
Despite the cloudy prospects, we present a few stocks that investors can buy given their growth prospects. But before that let’s take a look at the industry’s recent stock market performance and its current valuation.
Industry Outperforms Sector and S&P 500
The Zacks Technology Services industry has outperformed the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.
The industry has surged 58.5% over this period compared with the 27.9% rally of the broader sector and the 58.2% increase of the Zacks S&P 500 composite.
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 19.13X compared with the S&P 500’s 17.53X and the sector’s 15.54X.
Over the past two years, the industry has traded as high as 20.46X, as low as 6.61X and at the median of 8.64X as the charts below show.
EV-to-EBITDA
3 Technology Services Stocks to Keep a Close Eye on
TTEC Holdings: This Colorado-based customer experience technology and services company focuses on the design, implementation and delivery of transformative customer experience for various brands.
The company’s top and the bottom lines have been benefiting from a favorable foreign currency impact for a while now. Further, operational efficiencies and reduction in expenses are aiding the bottom line. The company’s cash position allows it to pursue strategic acquisitions, invest in growth initiatives and return cash through regular quarterly dividend payments.
The Zacks Consensus Estimate for current-year earnings has improved 38.4% in the past 90 days. The stock has gained more than 100% over the past year.
Price & Consensus: TTEC
Trane Technologies:This Ireland-based company designs, manufactures, sells and services climate-control products for heating, ventilation, air conditioning and transport solutions.
Despite the pandemic impacts, the company’s top line benefited from bookings growth in all its segments. The company witnessed broad-based outgrowth and share gains across challenging global end-markets. Solid execution, operational efficiencies and focused cost initiatives are steadily aiding the bottom line. Consistency in rewarding shareholders through dividend payments and share buybacks boosts investor confidence and contributes to earnings.
The Zacks Consensus Estimate for current-year earnings has moved 8.8% north in the past 90 days. The stock has soared 80.3% over the past year.
Price & Consensus: TT
Rocket Companies: This Florida-based company successfully managed to witness growth in all its business segments. Solid client retention and operational efficiencies are other tailwinds. Rising demand for technology solutions enabled the company to increase investments in cloud-based, technology-enabled operating model. This is expected to supplement the company’s growth amid the coronavirus-induced dependency on technology. This apart, the company’s board declared a special dividend of $1.11 per share, payable Mar 23, 2021 to its shareholders of record at the close of business on Mar 9, 2021. Such shareholder-friendly moves not only drive investor confidence but also aid earnings per share.
The Zacks Consensus Estimate for current-year earnings has been revised 46.3% upward in the past 90 days. The stock has gained 20% over the past year.
Price & Consensus: RKT
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Image: Bigstock
3 Technology Services Stocks to Capitalize on Amid Coronavirus
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.
TTEC Holdings, Inc. (TTEC - Free Report) , Trane Technologies plc (TT - Free Report) and Rocket Companies, Inc. (RKT - Free Report) are a few stocks that are likely to gain from the above-mentioned industry trends.
Industry Description
The Zacks Technology Services industry comprises companies, which 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.
4 Trends Shaping the Future of Technology Services Industry
Growing Digitization 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, IoT, AI and analytics. Moreover, increasing Internet penetration in the emerging markets, particularly across the Asia-Pacific, is a tailwind.
Work-From-Home Wave 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 adoptable hybrid solutions. Notably, coronavirus-triggered demand for remote working, digital healthcare and online learning solutions 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 the emerging economies will play a crucial role in the days ahead.
Talent Cost and Shortage Remain a Concern: Rising spend 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. Furthermore, increasing U.S. protectionism continues to mar the industry’s prospects as traditional IT service providers are significantly exposed to H1-B visa issuance. Markedly, the coronavirus-led economic downturn resulted in layoffs and pay cuts, which are likely to induce the termination of H1-B visas, thereby remaining an overhang for some time now.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #189. This rank places it in the bottom 25% 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 revising their estimates downward. Over the past year, the industry’s consensus earnings estimate for the current year has decreased 19%.
Despite the cloudy prospects, we present a few stocks that investors can buy given their growth prospects. But before that let’s take a look at the industry’s recent stock market performance and its current valuation.
Industry Outperforms Sector and S&P 500
The Zacks Technology Services industry has outperformed the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.
The industry has surged 58.5% over this period compared with the 27.9% rally of the broader sector and the 58.2% increase of the Zacks S&P 500 composite.
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 19.13X compared with the S&P 500’s 17.53X and the sector’s 15.54X.
Over the past two years, the industry has traded as high as 20.46X, as low as 6.61X and at the median of 8.64X as the charts below show.
EV-to-EBITDA
3 Technology Services Stocks to Keep a Close Eye on
We are presenting three stocks that currently carry a Zacks Rank #2 (Buy) 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.
TTEC Holdings: This Colorado-based customer experience technology and services company focuses on the design, implementation and delivery of transformative customer experience for various brands.
The company’s top and the bottom lines have been benefiting from a favorable foreign currency impact for a while now. Further, operational efficiencies and reduction in expenses are aiding the bottom line. The company’s cash position allows it to pursue strategic acquisitions, invest in growth initiatives and return cash through regular quarterly dividend payments.
The Zacks Consensus Estimate for current-year earnings has improved 38.4% in the past 90 days. The stock has gained more than 100% over the past year.
Price & Consensus: TTEC
Trane Technologies:This Ireland-based company designs, manufactures, sells and services climate-control products for heating, ventilation, air conditioning and transport solutions.
Despite the pandemic impacts, the company’s top line benefited from bookings growth in all its segments. The company witnessed broad-based outgrowth and share gains across challenging global end-markets. Solid execution, operational efficiencies and focused cost initiatives are steadily aiding the bottom line. Consistency in rewarding shareholders through dividend payments and share buybacks boosts investor confidence and contributes to earnings.
The Zacks Consensus Estimate for current-year earnings has moved 8.8% north in the past 90 days. The stock has soared 80.3% over the past year.
Rocket Companies: This Florida-based company successfully managed to witness growth in all its business segments. Solid client retention and operational efficiencies are other tailwinds. Rising demand for technology solutions enabled the company to increase investments in cloud-based, technology-enabled operating model. This is expected to supplement the company’s growth amid the coronavirus-induced dependency on technology. This apart, the company’s board declared a special dividend of $1.11 per share, payable Mar 23, 2021 to its shareholders of record at the close of business on Mar 9, 2021. Such shareholder-friendly moves not only drive investor confidence but also aid earnings per share.
The Zacks Consensus Estimate for current-year earnings has been revised 46.3% upward in the past 90 days. The stock has gained 20% over the past year.
Price & Consensus: RKT
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
AccessZacks Top 10 Stocks for 2021 today >>