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Business Information Outlook: Customer Centrism a Key Trend

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The Zacks Business – Information Services industry comprises companies that offer a range of services including software, data, risks, research, information and analytics solutions.

These companies operate in a dynamic business environment characterized by changing customer behaviors, preferences and demographics.

 Here are the three major themes in the industry:

  • While demand for solutions that ensure cost reduction, productivity improvement and revenue growth is on the rise, requirements vary from one customer to another. This has increased business opportunities for industry players who are increasingly focusing on providing more customer-centric solutions.
     
  • Automation in assembling and use of big data in enhancing business information should drive industry’s growth. The companies are moving from conventional data solutions to technical and domain-specific expertise, data analytics solutions, financial consultancy, and operational consultancy services.
     
  • Post the 2017 tax reform, corporate spending has increased with U.S. companies pouring tax savings into growth initiatives. This is spurring demand for business information services.

Technavio expects global business information market to witness CAGR of more than 5% during the period 2019-2023.

Zacks Industry Rank Indicates Gloomy Prospects

The Zacks Business – Information Services industry is housed within the broader Zacks Business Services sector. It carries a Zacks Industry Rank #204, which places it in the bottom 20% 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 underperformance in the near term. 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.

Despite the bleak prospects, we present a few stocks that have the potential to outperform the market. But before that, it’s worth taking a look at the industry’s performance and current valuation.

Industry Outperforms S&P 500, Underperforms Sector

The Zacks Business – Information Services industryhas outpaced the Zacks S&P 500 composite but lagged the broader Zacks Business Services sectorover the past year.

The industry has rallied 3.5% over this period compared with the broader sector’s rise of 3.9%. The S&P 500 composite has however declined 0.7%.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing business information services stocks, the industry is currently trading at 19.80 compared with the S&P 500’s 15.79 and the sector’s 20.25.

Over the past five years, the industry has traded as high as 23.14X, as low as 18.60X and at the median of 20.62X, as the charts below show.

Bottom Line

The business information market should gain traction backed by growing demand for information and analytics solutions. Focus of service providers on increasing customer-centric offerings and their shift toward technical and domain-specific expertise, financial consultancy, and operational consultancy services are also expected to boost industry growth.

None of the stocks in the Zacks Business – Information Services space currently holds a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy). Below, we have mentioned four stocks from the industry, which we believe investors should retain in their portfolio, as they carry a Zacks Rank #3 (Hold).

FactSet Research Systems Inc. (FDS - Free Report) : The stock of this Connecticut-based provider of critical information, analytics, and solutions has gained 18.3% year to date. The Zacks Consensus Estimate for current year EPS has remained unchanged at $9.56 in the past 60 days.

You can see the complete list of today’s Zacks #1 Rank stocks here.

IHS Markit Ltd. (INFO - Free Report) : The stock of this London-based provider of specialty industrial serviceshas gained 11.4% year to date. The Zacks Consensus Estimate for current year EPS has remained unchanged at $2.27 in the past 60 days.

TransUnion (TRU - Free Report) : The stock of this Chicago-based risk and information solutions provider has surged 12.2% year to date. The Zacks Consensus Estimate for current year EPS has increased 0.8% to $2.48 in the past 60 days.

Black Knight, Inc. (BKI - Free Report) : The stock of this Florida-based software, data, and analytics solutions provider has gained 3.9% year to date. The Zacks Consensus Estimate for current year EPS has increased 2.2% to $1.84 in the past 60 days.

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