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CI&T (CINT) Banking on Digital Transformation & Acquisition (Revised)
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CI&T Inc. (CINT - Free Report) has been benefiting from its market-leading digital strategy combined with customer-centric design and best-in-class software engineering. The company has evolved from a niche R&D Internet software provider in Brazil to a global end-to-end digital transformation specialist.
CINT has broadened its operations globally through acquisitions, openings in new markets and verticals, and expansion of its talent base. These moves should favor the company’s organic growth in its four operating regions, namely, North America, Latin America, Europe and Asia Pacific.
CINT’s shares have gained 20.7% in the past three months compared with the Zacks Engineering - R and D Services industry’s 13.2% growth.
Image Source: Zacks Investment Research
However, macroeconomic headwinds and client concentration pose major risks to this Zacks Rank #3 (Hold) company.
Let’s discuss a few factors driving the company’s performance over the years and the potent risks.
Solid Q1 Result & Outlook: CI&T’s revenues grew 24% year over year (24.3% growth at constant currency) during first-quarter 2023, thanks to impressive improvement in the number of clients with annual revenues above R$1 million. Adjusted Net Profit margin of 11% was also higher than 8% reported in the previous year.
Adjusted EBITDA rose 37.9% year over year and adjusted EBITDA margin of 19.1% expanded 190 basis points from first-quarter 2022, mainly due to the dilution of SG&A expenses.
For the second quarter, the company expects net revenues to increase 9% on a reported basis. For 2023, CI&T anticipates net revenue growth within 13-17% year over year, on a constant currency basis. In addition, it estimates adjusted EBITDA margin to be at least 19% for the year.
Per the Zacks Consensus Estimate, earnings estimates for 2023 suggest 9.7% year-over-year growth on 17.6% higher revenues.
Accretive Acquisition: Acquisitions have been an integral part of CI&T’s growth trajectory. Established in 1995, the company expanded its business with the acquisition of Comrade, Inc. In 2021, it added Dextra Holdings, a customized software development services provider, and its subsidiaries.
In 2022, the company continued its expansion with the buyouts of Somo Global Ltd, BOX 1824 Planejamento e Marketing Ltda, Transpire Technology Pty Ltd and NTERSOL Consulting LLC, along with their subsidiaries. Somo is a digital product agency, mainly based in the United Kingdom. CI&T acquired Box 1824, a strategic consulting firm, to accelerate its global strategic capabilities. Transpire is a digital product agency based in Australia and NTERSOL is a U.S.-based digital transformation provider. Importantly, NTERSOL has expanded its financial services platform in North America.
Market Leading Technology Services: Digital transformation has been a priority in the corporate world and CI&T is well-positioned to reap benefits from the evolving market conditions. Its focus on speed and digital efficiency resonates extremely well with large and innovative companies.
In the past few years, many emerging technologies and market trends, like mobility, cloud computing, artificial intelligence and hyper-connectivity, have revolutionized and altered how end-users interact with their brands, forcing businesses to redefine engagement models and customer experiences. CI&T requires specialized engineering and creative talent to design customized, innovative solutions rapidly and at scale. CI&T has been at the forefront of innovation, delivering business impact by transforming ideas into reality.
Its end-to-end offering addresses clients’ challenges and identifies opportunities where digital technologies can create value (Strategy), iterates it with multidisciplinary teams to create feasible solutions (Design) and finally, implements them at speed and scale (Engineering). This approach uniquely positions CINT to capitalize on the massive scale and continuous growth within the digital transformation services market.
Pricing: Solid pricing strategy has been helping the company to generate higher profits. Its profitability and operating results are majorly dependent on the rates they charge for the services provided. The company’s ability to maintain favorable pricing is likely to boost margins in the upcoming quarters.
Risks
Client Concentration: Although CI&T has been generating stronger profits in the past few years, the company may face client concentration risk as its top client holds 11% of total revenue generation in first-quarter 2023. Also, top 10 clients (excluding the top one) generated 33% of first-quarter revenues.
Macroeconomic Woes: Like any other industry, technology services is also experiencing various macroeconomic pressure. The economic disruption due to the ongoing war in Ukraine and economic sanctions imposed by Western economies over Russia, supply-chain disruptions, market volatility in the global banking sector, and labor challenges are hurting CI&T and industry. Although the increasing need for market-leading technologies are a boon for the industry, these factors are potent risks.
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Gates Industrial Corporation plc (GTES - Free Report) is a manufacturer of engineered power transmission, and fluid power solutions and components for various industrial and automotive applications, both in the aftermarket and first-fit channels across the world.
GTES currently carries a Zacks Rank #2 (Buy). Its expected earnings growth rate for 2023 is 3.5%. The consensus mark for GTES’ 2023 earnings has moved north to $1.18 per share from $1.17 in the past 60 days.
Howmet Aerospace, Inc. (HWM - Free Report) is a global manufacturer of engineered products serving the aerospace, defense and commercial transportation industries. The company is expected to benefit from higher aircraft production rates and ease of supply chains in the transportation market.
Howmet Aerospace currently carries a Zacks Rank #2. HWM’s earnings for 2023 are expected to grow by 20.7%. The consensus mark for HWM’s 2023 earnings has moved north to $1.69 per share from $1.64 in the past 60 days.
Quanta Services Inc. (PWR - Free Report) is a leading national provider of specialty contracting services and one of the largest contractors serving the transmission and distribution sector of the North American electric utility industry. The company has been capitalizing on megatrends to lead the energy transition and enable technological development. Initiatives toward a reduced-carbon economy continue to drive demand for PWR’s services and depict incremental growth opportunities.
PWR currently carries a Zacks Rank #2. Its earnings for 2023 are expected to grow by 10.6%. The consensus mark for PWR’s 2023 earnings has remained stable at $7.01 in the past 60 days.
(We are reissuing this article to correct a mistake. The original article, issued on July 7, 2023, should no longer be relied upon.)
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CI&T (CINT) Banking on Digital Transformation & Acquisition (Revised)
CI&T Inc. (CINT - Free Report) has been benefiting from its market-leading digital strategy combined with customer-centric design and best-in-class software engineering. The company has evolved from a niche R&D Internet software provider in Brazil to a global end-to-end digital transformation specialist.
CINT has broadened its operations globally through acquisitions, openings in new markets and verticals, and expansion of its talent base. These moves should favor the company’s organic growth in its four operating regions, namely, North America, Latin America, Europe and Asia Pacific.
CINT’s shares have gained 20.7% in the past three months compared with the Zacks Engineering - R and D Services industry’s 13.2% growth.
Image Source: Zacks Investment Research
However, macroeconomic headwinds and client concentration pose major risks to this Zacks Rank #3 (Hold) company.
Let’s discuss a few factors driving the company’s performance over the years and the potent risks.
Solid Q1 Result & Outlook: CI&T’s revenues grew 24% year over year (24.3% growth at constant currency) during first-quarter 2023, thanks to impressive improvement in the number of clients with annual revenues above R$1 million. Adjusted Net Profit margin of 11% was also higher than 8% reported in the previous year.
Adjusted EBITDA rose 37.9% year over year and adjusted EBITDA margin of 19.1% expanded 190 basis points from first-quarter 2022, mainly due to the dilution of SG&A expenses.
For the second quarter, the company expects net revenues to increase 9% on a reported basis. For 2023, CI&T anticipates net revenue growth within 13-17% year over year, on a constant currency basis. In addition, it estimates adjusted EBITDA margin to be at least 19% for the year.
Per the Zacks Consensus Estimate, earnings estimates for 2023 suggest 9.7% year-over-year growth on 17.6% higher revenues.
Accretive Acquisition: Acquisitions have been an integral part of CI&T’s growth trajectory. Established in 1995, the company expanded its business with the acquisition of Comrade, Inc. In 2021, it added Dextra Holdings, a customized software development services provider, and its subsidiaries.
In 2022, the company continued its expansion with the buyouts of Somo Global Ltd, BOX 1824 Planejamento e Marketing Ltda, Transpire Technology Pty Ltd and NTERSOL Consulting LLC, along with their subsidiaries. Somo is a digital product agency, mainly based in the United Kingdom. CI&T acquired Box 1824, a strategic consulting firm, to accelerate its global strategic capabilities. Transpire is a digital product agency based in Australia and NTERSOL is a U.S.-based digital transformation provider. Importantly, NTERSOL has expanded its financial services platform in North America.
Market Leading Technology Services: Digital transformation has been a priority in the corporate world and CI&T is well-positioned to reap benefits from the evolving market conditions. Its focus on speed and digital efficiency resonates extremely well with large and innovative companies.
In the past few years, many emerging technologies and market trends, like mobility, cloud computing, artificial intelligence and hyper-connectivity, have revolutionized and altered how end-users interact with their brands, forcing businesses to redefine engagement models and customer experiences. CI&T requires specialized engineering and creative talent to design customized, innovative solutions rapidly and at scale. CI&T has been at the forefront of innovation, delivering business impact by transforming ideas into reality.
Its end-to-end offering addresses clients’ challenges and identifies opportunities where digital technologies can create value (Strategy), iterates it with multidisciplinary teams to create feasible solutions (Design) and finally, implements them at speed and scale (Engineering). This approach uniquely positions CINT to capitalize on the massive scale and continuous growth within the digital transformation services market.
Pricing: Solid pricing strategy has been helping the company to generate higher profits. Its profitability and operating results are majorly dependent on the rates they charge for the services provided. The company’s ability to maintain favorable pricing is likely to boost margins in the upcoming quarters.
Risks
Client Concentration: Although CI&T has been generating stronger profits in the past few years, the company may face client concentration risk as its top client holds 11% of total revenue generation in first-quarter 2023. Also, top 10 clients (excluding the top one) generated 33% of first-quarter revenues.
Macroeconomic Woes: Like any other industry, technology services is also experiencing various macroeconomic pressure. The economic disruption due to the ongoing war in Ukraine and economic sanctions imposed by Western economies over Russia, supply-chain disruptions, market volatility in the global banking sector, and labor challenges are hurting CI&T and industry. Although the increasing need for market-leading technologies are a boon for the industry, these factors are potent risks.
3 Better-Ranked Construction Stocks Hogging in the Limelight
Gates Industrial Corporation plc (GTES - Free Report) is a manufacturer of engineered power transmission, and fluid power solutions and components for various industrial and automotive applications, both in the aftermarket and first-fit channels across the world.
GTES currently carries a Zacks Rank #2 (Buy). Its expected earnings growth rate for 2023 is 3.5%. The consensus mark for GTES’ 2023 earnings has moved north to $1.18 per share from $1.17 in the past 60 days.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Howmet Aerospace, Inc. (HWM - Free Report) is a global manufacturer of engineered products serving the aerospace, defense and commercial transportation industries. The company is expected to benefit from higher aircraft production rates and ease of supply chains in the transportation market.
Howmet Aerospace currently carries a Zacks Rank #2. HWM’s earnings for 2023 are expected to grow by 20.7%. The consensus mark for HWM’s 2023 earnings has moved north to $1.69 per share from $1.64 in the past 60 days.
Quanta Services Inc. (PWR - Free Report) is a leading national provider of specialty contracting services and one of the largest contractors serving the transmission and distribution sector of the North American electric utility industry. The company has been capitalizing on megatrends to lead the energy transition and enable technological development. Initiatives toward a reduced-carbon economy continue to drive demand for PWR’s services and depict incremental growth opportunities.
PWR currently carries a Zacks Rank #2. Its earnings for 2023 are expected to grow by 10.6%. The consensus mark for PWR’s 2023 earnings has remained stable at $7.01 in the past 60 days.
(We are reissuing this article to correct a mistake. The original article, issued on July 7, 2023, should no longer be relied upon.)