The technology services industry comprises companies that are engaged in manufacturing, developing and designing an array of software support, data processing, computing hardware and communications equipment.
Adoption of enhanced technologies such as IoT and edge computing, cloud, AI, blockchain and biometrics, advanced data analytics and machine learning, is expected to keep increasing demand for services from the industry participants.
However, U.S. protectionism is limiting the industry’s growth prospects. Lack of skilled workers in the United States has been bothering the industry participants for quite some time.
Considering the backdrop, let’s do a comparative analysis of two technology services stocks — IQVIA Holdings Inc. IQV and Aptiv PLC (APTV. IQVIA has a market capitalization of 31.4 billion and the same for Aptiv is $20 million.
As the stocks carry a Zacks Rank #3 (Hold), we are using other parameters to provide investors a better insight.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past year, shares of IQVIA have gained 48.5%, while the same for Aptiv have declined 17%. The industry has declined 11.9% in the same time frame.
Earnings growth along with stock price gains is often an indication of a company’s strong prospects. IQVIA’s 2019 earnings are projected to grow 14.2% compared with 4.6% decline projected for Aptiv. Looking at 2020, IQVIA‘s earnings are again projected to grow 14.2%, while that of Aptiv are expected to increase 16.1%.
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock. The Zacks Consensus Estimate for IQVIA’s current-year earnings inched up 0.2%, while that for Aptiv declined 0.2 in the past 60 days. For the next year, the consensus mark for IQVIA increased 0.3% and that for Aptiv declined 1% for the said time frame.
Earnings Surprise History
The earnings surprise history of a stock provides investors an idea of its performance in the previous quarters. IQVIA and Aptiv have an impressive four-quarter earnings surprise history. However, Aptiv delivered a higher average positive surprise of 5.3% compared with IQVIA’s 2.3%.
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.
With a TTM net margin of 10.3%, IQVIA not only compares favorably with Aptiv’s figure of 9.2% but also has a lead over the industry’s 6.9% TTM net margin.
EV/EBITDA is a commonly used multiple for valuing technology services stocks. On the basis of this multiple, we observe that IQVIA compares unfavorably with Aptiv and the Industry. Aptiv compares favorably with the industry. While IQVIA has a trailing 12-month EV/EBITDA ratio of 15.4, the industry’s figure is 14.5X and Aptiv’s figure is 10.4X.
Our comparative analysis shows that IQVIA scores over Aptiv in terms of price performance, current-year expected earnings growth, current and next year earnings estimate revisions and net margin. Aptiv has an edge in terms of next-year expected earnings growth and earnings surprise history. A faster share price rally in the past year led to a rich valuation for IQVIA compared with Aptiv.
Stocks to Consider
A few better-ranked stocks in the broader Zacks Business Services sector include Broadridge BR, Accenture ACN and Visa V, each carrying a Zacks Rank #2 (Buy).
The long-term expected EPS (three to five years) growth rate for Broadridge, Accenture and Visa is 10%, 10.3% and 16.5%, respectively.
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Accenture PLC (ACN) : Free Stock Analysis Report
Broadridge Financial Solutions, Inc. (BR) : Free Stock Analysis Report
Visa Inc. (V) : Free Stock Analysis Report
Aptiv PLC (APTV) : Free Stock Analysis Report
IQVIA Holdings Inc. (IQV) : Free Stock Analysis Report
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