The technology services industry is continuously adopting and implementing technologies like the Internet of Things (IoT), edge computing, cloud, artificial intelligence (AI), blockchain and biometrics, advanced data analytics and machine learning. This trend should keep increasing demand for the services.
Given the significant savings post the tax reform, most technology companies are gearing up to invest the same for enhancing shareholders’ value or to fund mergers and acquisitions. Industry participants are also gearing up to assess global operations, which include supply chain, treasury, distribution, sales and marketing and finance, to function more effectively.
The industry includes consumer as well as business-oriented products and services. It comprises companies with diversified end markets and customer base.
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #80. This rank places it in the top 31% of more than 250 Zacks industries and indicates solid near-term growth prospects.
Given this backdrop, it is not a bad idea to undertake a comparative analysis of two Zacks Technology Services stocks — IQVIA Holdings Inc. (IQV - Free Report) and Delphi Technologies PLC (DLPH - Free Report) . While IQVIA Holdings has a market capitalization of $26.69 billion, Delphi Technologies’ market cap is $1.47 billion.
As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
IQVIA Holdings clearly scores over Delphi Technologies in terms of price performance. Over the past year, shares of IQVIA Holdings have gained 34.6% against 12.7% decline of the industry it belongs to. Shares of Delphi Technologies have declined 67.1% in the same time frame.
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
IQVIA Holdings’ second-quarter 2019 earnings are projected to grow 15.5% while that of Delphi Technologies are expected to decline 49.6%. For the full year, IQVIA Holdings’ earnings are projected to grow 14.1% while that of Delphi Technologies are expected to decrease 27.6%.
Thus, IQVIA Holdings has an edge over Delphi Technologies in terms of quarterly and yearly projected earnings growth.
Earnings Surprise History
The earnings surprise history of a stock helps investors have an idea of the stock’s performance in the previous quarters.
IQVIA Holdings and Delphi Technologies have an impressive earning surprise history, with IQVIA Holdings’ earnings surpassing the Zacks Consensus Estimate in each of the previous four quarters. Delphi Technologies’ earnings outpaced the consensus mark in three of the past four quarters.
However, Delphi Technologies delivered average positive earnings surprise of 11% compared with 2.4% for IQVIA Holdings.
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.
While IQVIA Holdings has a TTM net margin of 2.4%, the same stands at 7.4% for Delphi Technologies. Though both the stocks compare unfavorably with the industry’s figure of 21.9%, Delphi Technologies has a higher TTM net margin than IQVIA Holdings.
EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization) ratio is the commonly used metric for valuing technology services stocks because of their high debt levels.
We observe that IQVIA Holdings and Delphi Technologies have EV/EBITDA ratio of 13.7 and 4.7, respectively compared with the industry’s figure of 11.9. The numbers clearly show that Delphi Technologies is not only cheaper than IQVIA Holdings but also undervalued compared to the industry it belongs to.
Our comparative analysis shows that IQVIA Holdings scores over Delphi Technologies in terms of price performance, quarterly and yearly projected earnings growth. Delphi Technologies has an edge in terms of earnings surprise history and net margin.
A solid share price rally in the past year has led to a relatively rich valuation for IQVIA Holdings compared to Delphi Technologies.
Stocks to Consider
A few better-ranked stocks in the broader Zacks Business Services sector are Navigant Consulting , WEX (WEX - Free Report) and FLEETCOR Technologies (FLT - Free Report) . While Navigant Consulting sports a Zacks Rank #1, WEX and FLEETCOR carry a Zacks Rank #2.
Long-term expected EPS (three to five years) growth rate for Navigant Consulting, WEX and FLEETCOR is 13.5%, 15% and 16.5%, respectively.
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