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Near-Term Outlook Rosy for Business Information Services

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The companies grouped under the Business – Information Services category offer a range of services, including software, data, risks, research, information and analytics solutions.

Prominent industry players include information-measurement giant Nielsen (NLSN - Free Report) , ratings, benchmarks, analytics, and data provider S&P Global Inc. (SPGI - Free Report) , critical information and analytics provider IHS Markit Ltd. (INFO - Free Report) and provider of data analytics solutions Verisk Analytics (VRSK - Free Report) . These companies operate in a dynamic business environment characterized by changing customer behavior, preference and demographics.

Here are the industry’s three major themes:

  • The industry is mature with revenues mostly driven by paid content, either through subscription or transaction (pay-per-view). Revenues, income and cash flows are growing steadily over the past few years, enabling most industry players to pay out stable dividends.
     
  • Customers are increasingly demanding solutions that ensure cost reduction, productivity improvement, risk mitigation and revenue growth. This has increased the need for accurate market and financial information, thereby spurring demand for business information services. Industry players are increasingly focusing on providing more customer-centric solutions.
     
  • Automation in assembling and use of big data in enhancing business information should drive the 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.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Business – Information Services industry is housed within the broader Zacks Business Services sector. It carries a Zacks Industry Rank #91, which places it in the top 36% 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.

Here are some stock picks for investors looking to make the most of the industry’s solid show.

Industry Outperforms Sector and S&P 500

Over the past year, the Zacks Business – Information Services industry has outperformed the Zacks S&P 500 composite and the broader sector.

While the industry has gained 44%, the broader sector and the Zacks S&P 500 composite have increased 28.3% and 25.6%, respectively.

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 27.17 compared with the S&P 500’s 18.87 and the sector’s 25.28.

Over the past five years, the industry has traded as high as 27.32X, as low as 19.42X and at the median of 21.85X, as the charts below show.

Forward 12-month Price-to-Earnings (P/E)

Bottom Line

The industry is a great area to invest in right now. It looks well poised for growth on the back of rising demand for information, analytics solution and risk mitigation, and increasing focus on customer-centric solutions.

Here are some stock picks for investors looking to make the most of the industry’s solid show.

S&P Global carries a Zacks Rank #2 (Buy) and has gained a massive 66.2% over the past year. The Zacks Consensus Estimate for the company’s 2020 earnings has risen 0.4% in the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Verisk Analytics also carries a Zacks Rank #2 has gained 42.1% in the past year. The Zacks Consensus Estimate for the company’s 2020 earnings has remained unchanged in the past 30 days.

Intertek Group (IKTSY - Free Report) is a #2 Ranked stock as well. The stock has gained 17.3% in the past year. The  Zacks Consensus Estimate for 2020 earnings has remained unchanged in the past 30 days.

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