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Encouraging Near-Term Outlook for Technology Services Stocks
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The Zacks Technology Services industry comprises companies that are engaged in manufacturing, developing and designing of 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.
Here are the industry’s three major themes:
The industry is continuously adopting and implementing technologies like the Internet of Things (IoT) and edge computing, cloud, artificial intelligence (AI), blockchain and biometrics, advanced data analytics and machine learning. This trend should keep increasing demand for services.
Strategic business moves like partnerships (both internal and external), mergers and acquisitions are being opted for by industry participants to expand into new markets and technologies. Industry players are also gearing up to assess global operations, which include supply chain, treasury, distribution, sales and marketing and finance, to function more effectively.
Increasing U.S. protectionism remains an overhang on the industry’s growth. Lack of skilled workers in the United States has been bothering industry participants for quite some time. This implies that companies should invest in training and educating their employees per the latest requirements. Further, service providers face security issues, regulatory hurdles and compliance-related issues due to operations across the globe.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #103. This rank places it in the top 40% 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 solid near-term growth 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.
Before we present a few stocks that investors can buy or retain given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Underperforms Sector and S&P 500
The Zacks Technology Services industry has underperformed the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 9.9% over this period against 12.6% rally of the broader sector and 7.4% rise 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 14.62X compared with the S&P 500’s 11.08X and the sector’s 11.57X.
Over the past three years, the industry has traded as high as 15.95X, as low as 6.83X and at the median of 9.60X, as the charts below show.
EV-to-EBITDA
Bottom Line
Growth opportunities from emerging technologiesand strategic business moves by industry participants to expand into new markets and technologies should offset challenges arising from U.S. protectionism, global regulatory uncertainties and security issues.
Two stocks from the Zacks Technology Services universe carry a Zacks Rank #2 (Buy).
Luna Innovations Incorporated (LUNA - Free Report) : This Virginia-based company develops, manufactures, and markets fiber optic sensing, and test and measurement products worldwide. Currently, it carries a Zacks Rank #2. The Zacks Consensus Estimate for current-year EPS has improved 26.7% in the past 90 days.
Price and Consensus: LUNA
Parsons Corporation (PSN - Free Report) : This Virginia-based company provides technology-based solutions in the defense, intelligence, and critical infrastructure markets in North America, the Middle East, and internationally. Currently, it carries a Zacks Rank #2. The Zacks Consensus Estimate for current-year EPS has improved 22.8% in the past 90 days.
Aptiv (APTV - Free Report) : This Ireland-based company designs and manufacturers vehicle components, and provides electrical, electronic, and safety technology solutions to the automotive and commercial vehicle markets worldwide. Currently, it carries a Zacks Rank #3. The Zacks Consensus Estimate for current-year EPS has increased 2.4% in the past 90 days.
Price and Consensus: APTV
IQVIA Holdings (IQV - Free Report) : This 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. Currently, it has a Zacks Rank #3. The Zacks Consensus Estimate for current-year EPS has improved 0.8% in the past 90 days.
Price and Consensus: IQV
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.50% per year. So be sure to give these hand-picked 7 your immediate attention.
Image: Bigstock
Encouraging Near-Term Outlook for Technology Services Stocks
The Zacks Technology Services industry comprises companies that are engaged in manufacturing, developing and designing of 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.
Here are the industry’s three major themes:
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #103. This rank places it in the top 40% 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 solid near-term growth 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.
Before we present a few stocks that investors can buy or retain given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Underperforms Sector and S&P 500
The Zacks Technology Services industry has underperformed the broader Zacks Business Services sector as well as the Zacks S&P 500 composite over the past year.
The industry has declined 9.9% over this period against 12.6% rally of the broader sector and 7.4% rise 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 14.62X compared with the S&P 500’s 11.08X and the sector’s 11.57X.
Over the past three years, the industry has traded as high as 15.95X, as low as 6.83X and at the median of 9.60X, as the charts below show.
EV-to-EBITDA
Bottom Line
Growth opportunities from emerging technologiesand strategic business moves by industry participants to expand into new markets and technologies should offset challenges arising from U.S. protectionism, global regulatory uncertainties and security issues.
Two stocks from the Zacks Technology Services universe carry a Zacks Rank #2 (Buy).
Luna Innovations Incorporated (LUNA - Free Report) : This Virginia-based company develops, manufactures, and markets fiber optic sensing, and test and measurement products worldwide. Currently, it carries a Zacks Rank #2. The Zacks Consensus Estimate for current-year EPS has improved 26.7% in the past 90 days.
Price and Consensus: LUNA
Parsons Corporation (PSN - Free Report) : This Virginia-based company provides technology-based solutions in the defense, intelligence, and critical infrastructure markets in North America, the Middle East, and internationally. Currently, it carries a Zacks Rank #2. The Zacks Consensus Estimate for current-year EPS has improved 22.8% in the past 90 days.
Price and Consensus: PSN
We are also presenting two more stocks from the same industry, which we believe investors should hold on to as these carry a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Aptiv (APTV - Free Report) : This Ireland-based company designs and manufacturers vehicle components, and provides electrical, electronic, and safety technology solutions to the automotive and commercial vehicle markets worldwide. Currently, it carries a Zacks Rank #3. The Zacks Consensus Estimate for current-year EPS has increased 2.4% in the past 90 days.
Price and Consensus: APTV
IQVIA Holdings (IQV - Free Report) : This 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. Currently, it has a Zacks Rank #3. The Zacks Consensus Estimate for current-year EPS has improved 0.8% in the past 90 days.
Price and Consensus: IQV
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.50% per year. So be sure to give these hand-picked 7 your immediate attention.
See them now >>