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The Zacks Computer - Services industry has been facing macroeconomic challenges. Elongated sales cycle, lower conversion rates and delays by customers in making purchase decisions are notable headwinds. However, the industry is riding on the ongoing digital transformation, which is increasing the demand for cloud-enabled software solutions.
The rising adoption of digital transformative techniques in healthcare and financial services has been a silver lining for industry participants. CACI International, Perficient and CSG Systems are well-positioned to benefit from the above-mentioned factors. The growing need for consulting, research and cyber-security solutions, stringent regulations, digital healthcare, and the growing adoption of business automation solutions is likely to continue driving the industry's prospects.
Industry Description
The Zacks Computer - Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include consulting and research solutions, security solutions, business support solutions and systems engineering, as well as software application development solutions. The industry participants cater to varied end markets and customers, including intelligence, defense, U.S. government agencies, communications, banking, financial services, insurance, healthcare, and media and entertainment.
Consultancy companies in the industry are helping clients in their ongoing digital transformation. They provide end-to-end services, including application development, integration and maintenance, technology infrastructure management and business process services.
3 Computer-Services Industry Trends to Watch
Remote & Hybrid Work Trends Boost Prospects: The industry's growth is expected to accelerate in the days ahead based on an increasing number of remote and hybrid workers. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures, enabling them to provide flexible and easily adaptable hybrid solutions. The coronavirus-induced remote-working trend has led to increased demand for cloud and cost-efficient business support solutions, as well as other digital monetization solutions, which bode well for the industry.
Growing Cyber Attacks are Creating a Tailwind: The increasing number of cyber-attacks and related security risks are expected to keep the industry's momentum alive. Government agencies are ideal targets for cyber-attacks, as they are entrusted with sensitive information. Therefore, the growing need for cyber security solutions and services in critical areas like defense, intelligence and civilian agencies of the U.S. government bodes well for industry players.
Regulatory Compliance Drives Demand: The companies in this industry are likely to benefit from increasingly complex network systems and sensitive information environments in which governments and businesses operate. The industry participants are keeping pace with the global regulatory and business practice requirements, thereby helping customers incorporate the best practices while complying with governmental and industry norms.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #183, which places it in the bottom 27% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry's position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group's earnings growth potential. Since Dec 31, 2022, the Zacks Consensus Estimate for the industry's 2023 earnings has moved down 30.5%.
Despite the gloomy industry outlook, there are a few stocks worth watching. But before we present those 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 Computer – Services industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index over the past year.
The industry has risen 8.2% over this period compared with the S&P 500's rally of 16.6% and the broader sector's return of 37.8%.
Industry's Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer stocks, we see that the industry is currently trading at 14.69X compared with the S&P 500's 19.43X and the sector's forward-12-month P/E of 24.66X.
Over the last five years, the industry has traded as high as 19.79X and as low as 12.67X, with a median of 16.12X.
CSG Systems continues to focus on delivering organic revenue growth in the range of 2-6% over the long term.
The Zacks Consensus Estimate for CSG Systems' 2023 earnings has increased by a penny to $3.63 per share over the past 30 days. The stock has declined 7.8% in the year-to-date period.
CACI International: This Zacks Rank #3 (Hold) company has been benefiting from business wins and organic expansions. CACI has a large pipeline of new projects and continues to win more deals at regular intervals. Having the government as a big client lends stability to the company's business and moderates revenue fluctuations.
CACI's sustained focus on its strategy to grow in larger markets and leverage mergers and acquisitions to further increase its market share.
The Zacks Consensus Estimate for CACI's fiscal 2024 earnings has been steady at $20.05 per share over the past 30 days. The stock has gained 9.3% year to date.
Perficient: This Zacks Rank #3 company benefits from a strong partner base and an expanding clientele.
Perficient's top-line benefits from partnerships with the likes of Microsoft and Adobe. This is helping it to win new deals. In third-quarter 2023, Perficient booked 37 deals greater than a million dollars.
The Zacks Consensus Estimate for Perficient's fiscal 2023 earnings has been unchanged at $3.97 per share over the past 30 days. The stock has declined 1.9% year to date.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights CACI International, Perficient and CSG Systems
For Immediate Release
Chicago, IL – December 15, 2023 – Today, Zacks Equity Research discusses CACI International (CACI - Free Report) , Perficient (PRFT - Free Report) and CSG Systems (CSGS - Free Report) .
Industry: Computer Services
Link: https://www.zacks.com/commentary/2198186/3-stocks-to-watch-from-the-challenging-computer-services-industry
The Zacks Computer - Services industry has been facing macroeconomic challenges. Elongated sales cycle, lower conversion rates and delays by customers in making purchase decisions are notable headwinds. However, the industry is riding on the ongoing digital transformation, which is increasing the demand for cloud-enabled software solutions.
The rising adoption of digital transformative techniques in healthcare and financial services has been a silver lining for industry participants. CACI International, Perficient and CSG Systems are well-positioned to benefit from the above-mentioned factors. The growing need for consulting, research and cyber-security solutions, stringent regulations, digital healthcare, and the growing adoption of business automation solutions is likely to continue driving the industry's prospects.
Industry Description
The Zacks Computer - Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include consulting and research solutions, security solutions, business support solutions and systems engineering, as well as software application development solutions. The industry participants cater to varied end markets and customers, including intelligence, defense, U.S. government agencies, communications, banking, financial services, insurance, healthcare, and media and entertainment.
Consultancy companies in the industry are helping clients in their ongoing digital transformation. They provide end-to-end services, including application development, integration and maintenance, technology infrastructure management and business process services.
3 Computer-Services Industry Trends to Watch
Remote & Hybrid Work Trends Boost Prospects: The industry's growth is expected to accelerate in the days ahead based on an increasing number of remote and hybrid workers. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures, enabling them to provide flexible and easily adaptable hybrid solutions. The coronavirus-induced remote-working trend has led to increased demand for cloud and cost-efficient business support solutions, as well as other digital monetization solutions, which bode well for the industry.
Growing Cyber Attacks are Creating a Tailwind: The increasing number of cyber-attacks and related security risks are expected to keep the industry's momentum alive. Government agencies are ideal targets for cyber-attacks, as they are entrusted with sensitive information. Therefore, the growing need for cyber security solutions and services in critical areas like defense, intelligence and civilian agencies of the U.S. government bodes well for industry players.
Regulatory Compliance Drives Demand: The companies in this industry are likely to benefit from increasingly complex network systems and sensitive information environments in which governments and businesses operate. The industry participants are keeping pace with the global regulatory and business practice requirements, thereby helping customers incorporate the best practices while complying with governmental and industry norms.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #183, which places it in the bottom 27% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry's position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group's earnings growth potential. Since Dec 31, 2022, the Zacks Consensus Estimate for the industry's 2023 earnings has moved down 30.5%.
Despite the gloomy industry outlook, there are a few stocks worth watching. But before we present those 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 Computer – Services industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index over the past year.
The industry has risen 8.2% over this period compared with the S&P 500's rally of 16.6% and the broader sector's return of 37.8%.
Industry's Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer stocks, we see that the industry is currently trading at 14.69X compared with the S&P 500's 19.43X and the sector's forward-12-month P/E of 24.66X.
Over the last five years, the industry has traded as high as 19.79X and as low as 12.67X, with a median of 16.12X.
3 Computer-Services Stocks to Watch Right Now
CSG Systems: This Zacks Rank #2 (Buy) company is benefiting from strong demand for its SaaS products. Expanding clientele driven by a robust portfolio is driving top-line growth. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
CSG Systems continues to focus on delivering organic revenue growth in the range of 2-6% over the long term.
The Zacks Consensus Estimate for CSG Systems' 2023 earnings has increased by a penny to $3.63 per share over the past 30 days. The stock has declined 7.8% in the year-to-date period.
CACI International: This Zacks Rank #3 (Hold) company has been benefiting from business wins and organic expansions. CACI has a large pipeline of new projects and continues to win more deals at regular intervals. Having the government as a big client lends stability to the company's business and moderates revenue fluctuations.
CACI's sustained focus on its strategy to grow in larger markets and leverage mergers and acquisitions to further increase its market share.
The Zacks Consensus Estimate for CACI's fiscal 2024 earnings has been steady at $20.05 per share over the past 30 days. The stock has gained 9.3% year to date.
Perficient: This Zacks Rank #3 company benefits from a strong partner base and an expanding clientele.
Perficient's top-line benefits from partnerships with the likes of Microsoft and Adobe. This is helping it to win new deals. In third-quarter 2023, Perficient booked 37 deals greater than a million dollars.
The Zacks Consensus Estimate for Perficient's fiscal 2023 earnings has been unchanged at $3.97 per share over the past 30 days. The stock has declined 1.9% year to date.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.