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3 Technology Services Stocks to Watch Out For Despite Industry Woes
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COVID-induced increased dependency on technologyand initiatives to diversify technology services coupled with growing digitization have been boosting prospects of the Zacks Technology Services industry. Growth opportunities from robust adoption of the multi-cloud model should offset challenges arising from expenditures related to hiring skillful talent and restructuring initiatives.
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. Some industry players also provides advanced analytics, technology solutions, and contract research services, technology-enabled financial solutions and data storage technology. The industry includes consumer as well as business-oriented products and services. It comprises companies with diversified end-markets and customer base.
What's 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 infrastructure that will enable them to provide flexible and easily adoptable hybrid solutions. 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.
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.
Solid 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 Woes: 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.
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 #185. This rank places it in the bottom 38% 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 42.3%.
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 26.3% over this period compared with 17.3% decline of the broader sector. In contrast, the Zacks S&P 500 composite has risen 31.6% .
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 17.34X compared with the S&P 500’s 17.46X and the sector’s 18.29X.
Over the past year, the industry has traded as high as 20.39X, as low as 12.28X and at the median of 16.59X as the charts below show.
EV-to-EBITDA
3 Technology Services Stocks to Keep a Close Eye on
Seagate Technology: This Zacks Rank #1 (Strong 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 stocks here.
Seagate Technology’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 Artificial Intelligence (AI) and data analytics solutions as well as strength in 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 current-year EPS has improved 10.1% in the past 90 days. The stock has gained 72.8% over the past year.
Price & Consensus: STX
Blucora:This Zacks Rank #1 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.
The company 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 the bottom line.
The Zacks Consensus Estimate for current-year EPS has improved 11.2% in the past 90 days. The stock has gained 38.3% over the past year.
Price & Consensus: BCOR
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 has a strong healthcare-specific global IT infrastructure, analytics-driven clinical development capabilities, and a robust real world solutions ecosystem.With 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 range of $13.2-$13.5 billion compared with the prior guidance of $12.55-$12.90 billion. Adjusted earnings per share are expected to be between $8.50 and $8.75 compared with the prior guidance of $7.89-$8.20. Adjusted EBITDA is anticipated to be between $2.900 billion and $2.965 billion compared with the prior guidance of $2.760-$2.840 billion.
The Zacks Consensus Estimate for current-year EPS has improved 7.9% in the past 90 days. The stock has gained 50.4% over the past year.
Price & Consensus: IQV
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3 Technology Services Stocks to Watch Out For Despite Industry Woes
COVID-induced increased dependency on technologyand initiatives to diversify technology services coupled with growing digitization have been boosting prospects of the Zacks Technology Services industry. Growth opportunities from robust adoption of the multi-cloud model should offset challenges arising from expenditures related to hiring skillful talent and restructuring initiatives.
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. Some industry players also provides advanced analytics, technology solutions, and contract research services, technology-enabled financial solutions and data storage technology. The industry includes consumer as well as business-oriented products and services. It comprises companies with diversified end-markets and customer base.
What's 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 infrastructure that will enable them to provide flexible and easily adoptable hybrid solutions. 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.
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.
Solid 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 Woes: 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.
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 #185. This rank places it in the bottom 38% 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 42.3%.
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 26.3% over this period compared with 17.3% decline of the broader sector. In contrast, the Zacks S&P 500 composite has risen 31.6% .
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 17.34X compared with the S&P 500’s 17.46X and the sector’s 18.29X.
Over the past year, the industry has traded as high as 20.39X, as low as 12.28X and at the median of 16.59X as the charts below show.
EV-to-EBITDA
3 Technology Services Stocks to Keep a Close Eye on
Seagate Technology: This Zacks Rank #1 (Strong 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 stocks here.
Seagate Technology’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 Artificial Intelligence (AI) and data analytics solutions as well as strength in 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 current-year EPS has improved 10.1% in the past 90 days. The stock has gained 72.8% over the past year.
Price & Consensus: STX
Blucora:This Zacks Rank #1 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.
The company 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 the bottom line.
The Zacks Consensus Estimate for current-year EPS has improved 11.2% in the past 90 days. The stock has gained 38.3% over the past year.
Price & Consensus: BCOR
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 has a strong healthcare-specific global IT infrastructure, analytics-driven clinical development capabilities, and a robust real world solutions ecosystem.With 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 range of $13.2-$13.5 billion compared with the prior guidance of $12.55-$12.90 billion. Adjusted earnings per share are expected to be between $8.50 and $8.75 compared with the prior guidance of $7.89-$8.20. Adjusted EBITDA is anticipated to be between $2.900 billion and $2.965 billion compared with the prior guidance of $2.760-$2.840 billion.
The Zacks Consensus Estimate for current-year EPS has improved 7.9% in the past 90 days. The stock has gained 50.4% over the past year.
Price & Consensus: IQV