We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Computer IT Services Industry's Near-Term Prospects Bright
Read MoreHide Full Article
The Zacks Computer – IT Services industry comprises companies that provide consultancy, communications, IT management & operations, cloud-based web development platform, customer relationship management (CRM), professional information solutions and outsourcing services.
The industry participants serve a wide array of end-markets, which include manufacturing, banking, insurance, healthcare, government agencies and public sector institutions.
Here are the three major themes in the industry:
In a bid to modernize legacy-oriented business processes to keep pace with evolving IT services, most of the industry participants are in the process of restructuring their traditional services. The goal is to integrate the synergies of emerging technologies, including the likes of cloud, IoT, AI and analytics, to name a few. Further, the industry players are expected to benefit from rising IT-spending trends. Moreover, increasing internet penetration rates in the emerging markets, particularly across Asia-Pacific, is a tailwind. For instance, DXC Technology (DXC - Free Report) , one of the notable IT services providers, is focusing on cyber business, cloud computing market and Big Data business, to bolster growth prospects.
The industry’s growth is expected to accelerate in the near future on the back of increasing mobile workers amid ongoing workspace trend of Bring Your Own Devices (BYOD). In this era of digital transformation, small and medium enterprises remain key beneficiaries in this domain. 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.
Increasing U.S. protectionism remains a hindrance to the industry’s growth prospects, given the significant exposure of traditional IT services providers to H1-B visa issuance. Notably, lack of skilled workers particularly from STEM (Science, Technology, Engineering and Mathematics) fields in the United States has been a concern for quite some time. Also, uncertainty over settlement of the trade dispute between the United States and China, and macro-economic headwinds in the emerging markets does not bode well for the industry.
Zacks Industry Rank Indicates Bright Near-Term Prospects
The Zacks Computers - IT Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #78, which places it at the top 31% 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 bright 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 industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has improved 24.4%.
Before we present a few stocks that you may want to consider for your portfolio given the positive backdrop, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Computers - IT Services Industry has underperformed both the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.
The industry has declined 8.5% over this period against the S&P 500’s growth of 2%. Meanwhile, the broader sector declined 0.1% in the same time period.
One Year Price Performance
Industry’s Current Valuation
On the basis of EV/EBITDA (or Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio, which is a commonly used multiple for valuing the Computers - IT Services stocks, the industry is currently trading at 25.76X, higher than the S&P 500’s 10.7X and the sector’s 11.04X.
Over the past five years, the industry has traded as high as 32.92X and as low as 20.77X, with median being at 27.52, as the charts below show.
Enterprise Value/EBITDA Ratio (TTM)
Enterprise Value/EBITDA Ratio (TTM)
Bottom Line
Increasing internet penetration rates in the emerging markets and rising adoption of easily adoptable hybrid solutions remain primary catalysts.
These stocks are well positioned to grow in the near term.
Science Applications International Corporation (SAIC - Free Report) : Reston, VA-based SAIC is one of the leading IT and professional services provider, primarily to the U.S. government. The Zacks Rank #1 stock has returned 32.8% year to date. Moreover, the Zacks Consensus Estimate for current-year EPS improved 5.6% in the last 60 days to $5.49.
Price and Consensus: SAIC
EPAM Systems, Inc. (EPAM - Free Report) : Headquartered at Newtown, PA, EPAM Systems is engaged in providing services pertaining to software product development, custom application development, application testing, among others. The Zacks Rank #2 stock has gained 62.1% year to date. The Zacks Consensus Estimate for current fiscal year ESP has inched up 1.1% to $5.29 over the past 30 days.
Price and Consensus: EPAM
CDW Corporation (CDW - Free Report) : Lincolnshire, IL-based CDW Corporation offers integrated IT solutions to enterprises, government agencies, healthcare, and education customers across the United States, the U.K. and Canada. The stock, which carries a Zacks Rank #2, has returned 38.7% year to date. The Zacks Consensus Estimate for its current fiscal year EPS has improved by 1.6% to $5.86 over the past 30 days.
Price and Consensus: CDW
Amdocs Limited (DOX - Free Report) : Chesterfield, MO-based Amdocs is one of the leading providers of customer care, billing and order management systems for communications and Internet services. The Zacks Rank #2 stock has returned 10.2% year to date. The Zacks Consensus Estimate for current fiscal year ESP has increased by 3 cents to $4.31 over the past 30 days.
Price and Consensus: DOX
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Computer IT Services Industry's Near-Term Prospects Bright
The Zacks Computer – IT Services industry comprises companies that provide consultancy, communications, IT management & operations, cloud-based web development platform, customer relationship management (CRM), professional information solutions and outsourcing services.
The industry participants serve a wide array of end-markets, which include manufacturing, banking, insurance, healthcare, government agencies and public sector institutions.
Here are the three major themes in the industry:
Zacks Industry Rank Indicates Bright Near-Term Prospects
The Zacks Computers - IT Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #78, which places it at the top 31% 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 bright 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 industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has improved 24.4%.
Before we present a few stocks that you may want to consider for your portfolio given the positive backdrop, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Computers - IT Services Industry has underperformed both the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.
The industry has declined 8.5% over this period against the S&P 500’s growth of 2%. Meanwhile, the broader sector declined 0.1% in the same time period.
One Year Price Performance
Industry’s Current Valuation
On the basis of EV/EBITDA (or Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio, which is a commonly used multiple for valuing the Computers - IT Services stocks, the industry is currently trading at 25.76X, higher than the S&P 500’s 10.7X and the sector’s 11.04X.
Over the past five years, the industry has traded as high as 32.92X and as low as 20.77X, with median being at 27.52, as the charts below show.
Enterprise Value/EBITDA Ratio (TTM)
Enterprise Value/EBITDA Ratio (TTM)
Bottom Line
Increasing internet penetration rates in the emerging markets and rising adoption of easily adoptable hybrid solutions remain primary catalysts.
Here, we present four stocks that either have a Zacks Rank #1 (Strong Buy) or Rank 2 (Buy) that investors may take a look at. You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks are well positioned to grow in the near term.
Science Applications International Corporation (SAIC - Free Report) : Reston, VA-based SAIC is one of the leading IT and professional services provider, primarily to the U.S. government. The Zacks Rank #1 stock has returned 32.8% year to date. Moreover, the Zacks Consensus Estimate for current-year EPS improved 5.6% in the last 60 days to $5.49.
Price and Consensus: SAIC
EPAM Systems, Inc. (EPAM - Free Report) : Headquartered at Newtown, PA, EPAM Systems is engaged in providing services pertaining to software product development, custom application development, application testing, among others. The Zacks Rank #2 stock has gained 62.1% year to date. The Zacks Consensus Estimate for current fiscal year ESP has inched up 1.1% to $5.29 over the past 30 days.
Price and Consensus: EPAM
CDW Corporation (CDW - Free Report) : Lincolnshire, IL-based CDW Corporation offers integrated IT solutions to enterprises, government agencies, healthcare, and education customers across the United States, the U.K. and Canada. The stock, which carries a Zacks Rank #2, has returned 38.7% year to date. The Zacks Consensus Estimate for its current fiscal year EPS has improved by 1.6% to $5.86 over the past 30 days.
Price and Consensus: CDW
Amdocs Limited (DOX - Free Report) : Chesterfield, MO-based Amdocs is one of the leading providers of customer care, billing and order management systems for communications and Internet services. The Zacks Rank #2 stock has returned 10.2% year to date. The Zacks Consensus Estimate for current fiscal year ESP has increased by 3 cents to $4.31 over the past 30 days.
Price and Consensus: DOX
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>