3 Stocks to Watch From the Prospering Computer-Services Industry
The Zacks Computer - Services industry is riding on the ongoing digital transformation, which is driving 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 the industry participants. CGI Inc. GIB, CACI International CACI, and Perficient PRFT 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 growing adoption of business automation solutions should continue to drive the industry prospects. However, the industry has been facing macro-economic challenges. Elongated sales cycle, lower conversion rates and delays by customers in making purchase decisions are notable headwinds.
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 are providing 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, as well as 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: 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 the industry players.
Regulatory Compliance Drives Demand: The companies in this industry should benefit from increasingly complex network systems, and sensitive information environments in which governments, as well as 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 Solid Prospects
The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #100, which places it in the top 40% 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 bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than two to one.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. Since Dec 31, 2022, the Zacks Consensus Estimate for the industry’s 2023 earnings has moved up 3.6%.
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 Beats Sector & S&P 500
The Zacks Computer – Services industry has outperformed the broader Zacks Computer and Technology sector, as well as the S&P 500 Index, over the past year.
The industry has grown 4.7% over this period against the S&P 500’s fall of 7.2% and the broader sector’s decline of 8.3%.
One-Year Price Performance
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 14.74X compared with the S&P 500’s 18.48X and sector’s forward-12-month P/E of 22.84X.
Over the last five years, the industry has traded as high as 19.79X, as low as 12.67X and at the median of 16.38X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
3 Computer-Services Stocks to Watch Right Now
CGI: This Zacks Rank #2 (Buy) company is riding on an expanding customer base. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CGI is also benefiting from a strong partner base that includes the likes of Microsoft, SAP, AWS, Salesforce and ServiceNow. Moreover, accretive acquisitions have been driving top-line growth for the company.
The Zacks Consensus Estimate for CGI’s 2023 earnings has been unchanged at $5.42 per share over the past 30 days. The GIB stock has gained 20.4% in the past year.
Price and Consensus: GIB
CACI - 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 expects accelerating organic revenue growth and margin expansion throughout fiscal 2023.
The Zacks Consensus Estimate for CACI’s fiscal 2023 earnings has been unchanged at $18.01 per share over the past 30 days. The CACI stock has gained 1.7% in the past year.
Price and Consensus: CACI
Perficient - This Zacks Rank #3 company is riding on an expanding customer base. Strong demand for Perficient’s global delivery model has been a key catalyst.
The Zacks Consensus Estimate for the company’s 2023 earnings has been unchanged at $4.65 per share over the past 30 days. The PRFT stock has lost 36.8% in the past year.
Price and Consensus: PRFT
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CGI Group, Inc. (GIB) : Free Stock Analysis Report
CACI International, Inc. (CACI) : Free Stock Analysis Report
Perficient, Inc. (PRFT) : Free Stock Analysis Report
