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3 Stocks to Buy From the Prospering Computer-Services Industry
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The Zacks Computer - Services industry is riding on the ongoing digital transformation, which is increasing the demand for cloud-enabled software solutions. The rising adoption of digital transformative techniques in healthcare and financial services has been a silver lining for industry participants. CGI Group (GIB - Free Report) , Perficient (PRFT - Free Report) and Cass Information Systems (CASS - Free Report) are well-positioned to benefit from the above-mentioned factors. The growing need for consulting, research and cyber-security solutions, stringent regulations, digital healthcare and the growing adoption of business automation solutions is likely to continue driving the industry’s prospects. However, macroeconomic challenges, including high interest rates and inflation, which have resulted in an elongated sales cycle, lower conversion rates and delays by customers in making purchase decisions, are notable headwinds.
Industry Description
The Zacks Computer - Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include consulting and research solutions, 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, and media and entertainment. Consultancy companies in the industry are helping clients in their ongoing digital transformation. They provide end-to-end services, including application development, integration and maintenance, technology infrastructure management and business process services.
3 Computer-Services Industry Trends to Watch
Remote & Hybrid Work Trends Boost Prospects: The industry’s growth is expected to accelerate in the days ahead based on an increasing number of remote and hybrid workers. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures, enabling them to provide flexible and easily adaptable hybrid solutions. The growing remote-working trend 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 are Creating a Tailwind: The 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 industry players.
Regulatory Compliance Drives Demand: The companies in this industry are likely to benefit from increasingly complex network systems and sensitive information environments in which governments and businesses operate. The industry participants are keeping pace with the global regulatory and business practice requirements, thereby helping customers incorporate the best practices while complying with governmental and industry norms.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #57, which places it in the top 23% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 a 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 Oct 31, 2023, the Zacks Consensus Estimate for the industry’s 2023 earnings has moved up 4.12%.
Given the bright industry outlook, there are a number of stocks worth buying. But before we present those 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.
Industry Lags Sector and S&P 500
The Zacks Computer – Services industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index over the past year.
The industry has risen 23% over this period compared with the S&P 500’s rally of 26.5% and the broader sector’s return of 50.2%.
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 17.77X compared with the S&P 500’s 20.80X and the sector’s forward-12-month P/E of 24.66X.
Over the last five years, the industry has traded as high as 17.77X and as low as 14.75X, with a median of 15.85X, as the charts below show.
Expanding clientele is driving CGI Group’s top-line growth. CGI continues to invest in its business, including significant investments in expanding AI capabilities. Strategic partnerships, including the global partnership with Korber in the pharma and life sciences sector, are contributing to the company's prospects.
The Zacks Consensus Estimate for CGI Group’s fiscal 2024 earnings has increased 2.3% to $5.71 per share over the past 30 days. The stock has climbed 7.1% in the year-to-date period.
Price and Consensus: GIB
Perficient: This Zacks Rank #2 company benefits from a strong partner base and an expanding clientele. Its top line benefits from partnerships with the likes of Microsoft and Adobe. This is helping it to win new deals.
During fourth-quarter 2023, PRFT extended its partnership with the St. Louis Cardinals of Major League Baseball to further drive brand awareness and strengthen its client relationships in the St. Louis region and beyond.
Perficient’s prospects are bright, given its expanding portfolio. The acquisition of SMEDIX expands its footprint in the healthcare and life sciences software engineering domain.
The Zacks Consensus Estimate for Perficient’s 2024 earnings has been unchanged at $4.26 per share over the past 30 days. The stock has declined 1.4% year to date.
Price and Consensus: PRFT
Cass Information Systems: This Zacks Rank #2 company is benefiting from strong credit quality with no non-performing loans or charge-offs at the end of the fourth quarter of 2023.
Cass Information’s Waste Invoice Management and Utility Bill Management solutions have gained strong adoption and helped drive facility transaction volumes in the fourth quarter. The acceleration is expected to continue in the first and second quarters of 2024.
The Zacks Consensus Estimate for CASS’ 2024 earnings has been steady at $2.74 per share over the past 30 days. The stock has gained 7.3% year to date.
Price and Consensus: CASS
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3 Stocks to Buy From the Prospering Computer-Services Industry
The Zacks Computer - Services industry is riding on the ongoing digital transformation, which is increasing the demand for cloud-enabled software solutions. The rising adoption of digital transformative techniques in healthcare and financial services has been a silver lining for industry participants. CGI Group (GIB - Free Report) , Perficient (PRFT - Free Report) and Cass Information Systems (CASS - Free Report) are well-positioned to benefit from the above-mentioned factors. The growing need for consulting, research and cyber-security solutions, stringent regulations, digital healthcare and the growing adoption of business automation solutions is likely to continue driving the industry’s prospects. However, macroeconomic challenges, including high interest rates and inflation, which have resulted in an elongated sales cycle, lower conversion rates and delays by customers in making purchase decisions, are notable headwinds.
Industry Description
The Zacks Computer - Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include consulting and research solutions, 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, and media and entertainment. Consultancy companies in the industry are helping clients in their ongoing digital transformation. They provide end-to-end services, including application development, integration and maintenance, technology infrastructure management and business process services.
3 Computer-Services Industry Trends to Watch
Remote & Hybrid Work Trends Boost Prospects: The industry’s growth is expected to accelerate in the days ahead based on an increasing number of remote and hybrid workers. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures, enabling them to provide flexible and easily adaptable hybrid solutions. The growing remote-working trend 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 are Creating a Tailwind: The 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 industry players.
Regulatory Compliance Drives Demand: The companies in this industry are likely to benefit from increasingly complex network systems and sensitive information environments in which governments and businesses operate. The industry participants are keeping pace with the global regulatory and business practice requirements, thereby helping customers incorporate the best practices while complying with governmental and industry norms.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #57, which places it in the top 23% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 a 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 Oct 31, 2023, the Zacks Consensus Estimate for the industry’s 2023 earnings has moved up 4.12%.
Given the bright industry outlook, there are a number of stocks worth buying. But before we present those 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.
Industry Lags Sector and S&P 500
The Zacks Computer – Services industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index over the past year.
The industry has risen 23% over this period compared with the S&P 500’s rally of 26.5% and the broader sector’s return of 50.2%.
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 17.77X compared with the S&P 500’s 20.80X and the sector’s forward-12-month P/E of 24.66X.
Over the last five years, the industry has traded as high as 17.77X and as low as 14.75X, with a median of 15.85X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
3 Computer-Services Stocks to Buy Right Now
CGI Group: This Zacks Rank #2 (Buy) company is benefiting from strong demand for its managed services. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Expanding clientele is driving CGI Group’s top-line growth. CGI continues to invest in its business, including significant investments in expanding AI capabilities. Strategic partnerships, including the global partnership with Korber in the pharma and life sciences sector, are contributing to the company's prospects.
The Zacks Consensus Estimate for CGI Group’s fiscal 2024 earnings has increased 2.3% to $5.71 per share over the past 30 days. The stock has climbed 7.1% in the year-to-date period.
Price and Consensus: GIB
Perficient: This Zacks Rank #2 company benefits from a strong partner base and an expanding clientele. Its top line benefits from partnerships with the likes of Microsoft and Adobe. This is helping it to win new deals.
During fourth-quarter 2023, PRFT extended its partnership with the St. Louis Cardinals of Major League Baseball to further drive brand awareness and strengthen its client relationships in the St. Louis region and beyond.
Perficient’s prospects are bright, given its expanding portfolio. The acquisition of SMEDIX expands its footprint in the healthcare and life sciences software engineering domain.
The Zacks Consensus Estimate for Perficient’s 2024 earnings has been unchanged at $4.26 per share over the past 30 days. The stock has declined 1.4% year to date.
Price and Consensus: PRFT
Cass Information Systems: This Zacks Rank #2 company is benefiting from strong credit quality with no non-performing loans or charge-offs at the end of the fourth quarter of 2023.
Cass Information’s Waste Invoice Management and Utility Bill Management solutions have gained strong adoption and helped drive facility transaction volumes in the fourth quarter. The acceleration is expected to continue in the first and second quarters of 2024.
The Zacks Consensus Estimate for CASS’ 2024 earnings has been steady at $2.74 per share over the past 30 days. The stock has gained 7.3% year to date.
Price and Consensus: CASS
