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.
Computers-IT Services Industry Outlook Bright Despite Coronavirus
Read MoreHide Full Article
The Zacks Computers – IT Services industry comprises companies that provide consultancy, communications, IT management & operations, cloud-based web development platform, customer relationship management, 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.
Let us look at the four major themes in the industry:
The industry’s growth is expected to accelerate in the days ahead on increasing number of remote workers in the wake of the coronavirus crisis-induced work-from-home wave. Further, increasing mobile workers, courtesy of the ongoing workspace trend of Bring Your Own Devices, have been benefiting the industry players for quite some time. In this era of digital transformation, 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. Notably, ServiceNow (NOW - Free Report) , a prominent player in the industry, is gaining from rising adoption of its workflows by companies undergoing digital transformation. Notably, coronavirus-triggered demand for remote working, digital healthcare and online learning solutions has accelerated the adoption of digital transformation offerings among enterprises, which bodes well for the industry.
Most of the industry participants are in the process of modernizing their traditional legacy-oriented business processes in order to keep pace with evolving IT services. The aim is to integrate synergies of emerging technologies including cloud, IoT, AI and analytics. Moreover, increasing Internet penetration 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 prospects. Moreover, CDW Corporation (CDW - Free Report) is benefiting from growth across all the end markets with strength in small business, government and healthcare verticals.
Nevertheless, increasing spend on acquiring skilled talent, and restructuring initiatives involving modernizing the traditional IT-service infrastructure are leading to higher debt levels, R&D, and sales & marketing expenses. Further, presence of bellwethers like International Business Machines (IBM - Free Report) and Accenture plc in the IT and professional services markets have only intensified competition in the space. Additionally, weakness in demand for consulting services and shift in consumer buying patterns amid coronavirus-induced supply chain constraints are likely to dampen prospects of the industry participants. Moreover, macro-economic headwinds in the emerging markets do not bode well. Also, the industry players are anticipated to bear the brunt of slowdown in IT spending, as predicted by IDC.
Furthermore, increasing U.S. protectionism continues to mar the industry’s prospects, as traditional IT services providers are significantly exposed 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. Markedly, coronavirus-led economic downturn has triggered layoffs and pay cuts, which are likely to lead to termination of H1-B visas and remain an overhang for some time now.
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 #76, which places it at the top 30% 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 brightnear-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.
Before we present a few 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 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 declined10.8% over this period against the S&P 500 and the broader sector’s growth of 2.3% and 8.3%, respectively.
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 25.66X, higher than the S&P 500’s 10.76X and the sector’s 11.38X.
Over the past five years, the industry has traded as high as 33.18X and as low as 19.83X, with the median being at 27.51X, as the charts below show.
Enterprise Value/EBITDA Ratio (TTM)
Enterprise Value/EBITDA Ratio (TTM)
Bottom Line
Rising adoption of easily adoptable hybrid solutions and increasing Internet penetration rates in the emerging markets hold promise amid escalating coronavirus crisis-led macroeconomic headwinds.
These stocks are well positioned to grow in the near term.
Science Applications International Corp (SAIC - Free Report) : Reston, VA-based Science Applications is one of the leading IT and professional service providers, primarily to the U.S. government. The company has a trailing four-quarter positive earnings surprise of 8.73%, on average. The Zacks Consensus Estimate for its fiscal 2021 sales indicates an improvement of 13.6% year over year.
Price and Consensus: SAIC
Nutanix, Inc. (NTNX - Free Report) : San Jose, CA-based Nutanix provides enterprise cloud operating system that combines server, storage, virtualization and networking software into one integrated solution. The company has a trailing four-quarter positive earnings surprise of 9%, on average. The Zacks Consensus Estimate for fiscal 2020 sales suggests growth of 5.8% year over year.
Price and Consensus: NTNX
Medallia, Inc. : San Francisco, CA-based Medallia offers SaaS-based (or Software-as-a-Service) platform,which utilizes deep learning-based AI technology, to aid enterprises to analyze structured and unstructured data across signal fields in digital, human, and IoT interactions. The Zacks Consensus Estimate for its fiscal 2021 bottom line has been revised to earnings of 1 cent from a loss of 4 cents in the past 60 days. Further, the consensus mark for its fiscal 2021 sales indicates an improvement of 17% year over year.
Price and Consensus: MDLA
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Image: Bigstock
Computers-IT Services Industry Outlook Bright Despite Coronavirus
The Zacks Computers – IT Services industry comprises companies that provide consultancy, communications, IT management & operations, cloud-based web development platform, customer relationship management, 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.
Let us look at the four major themes in the industry:
Zacks Industry Rank Indicates Bright Near-Term Prospects
.jpg)
The Zacks Computers - IT Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #76, which places it at the top 30% 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 brightnear-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.
Before we present a few 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 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 declined10.8% over this period against the S&P 500 and the broader sector’s growth of 2.3% and 8.3%, respectively.
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 25.66X, higher than the S&P 500’s 10.76X and the sector’s 11.38X.
Over the past five years, the industry has traded as high as 33.18X and as low as 19.83X, with the median being at 27.51X, as the charts below show.
Enterprise Value/EBITDA Ratio (TTM)
Enterprise Value/EBITDA Ratio (TTM)
Bottom Line
Rising adoption of easily adoptable hybrid solutions and increasing Internet penetration rates in the emerging markets hold promise amid escalating coronavirus crisis-led macroeconomic headwinds.
Here, we present three industry stocks that carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
These stocks are well positioned to grow in the near term.
Science Applications International Corp (SAIC - Free Report) : Reston, VA-based Science Applications is one of the leading IT and professional service providers, primarily to the U.S. government. The company has a trailing four-quarter positive earnings surprise of 8.73%, on average. The Zacks Consensus Estimate for its fiscal 2021 sales indicates an improvement of 13.6% year over year.
Price and Consensus: SAIC
Nutanix, Inc. (NTNX - Free Report) : San Jose, CA-based Nutanix provides enterprise cloud operating system that combines server, storage, virtualization and networking software into one integrated solution. The company has a trailing four-quarter positive earnings surprise of 9%, on average. The Zacks Consensus Estimate for fiscal 2020 sales suggests growth of 5.8% year over year.
Price and Consensus: NTNX
Medallia, Inc. : San Francisco, CA-based Medallia offers SaaS-based (or Software-as-a-Service) platform,which utilizes deep learning-based AI technology, to aid enterprises to analyze structured and unstructured data across signal fields in digital, human, and IoT interactions. The Zacks Consensus Estimate for its fiscal 2021 bottom line has been revised to earnings of 1 cent from a loss of 4 cents in the past 60 days. Further, the consensus mark for its fiscal 2021 sales indicates an improvement of 17% year over year.
Price and Consensus: MDLA
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>