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Computer Integrated Systems Industry Outlook: Prospects Bleak

Awantika Poddar

The Zacks Computer – Integrated Systems industry comprises companies that provide advanced information technology solutions, including computer systems, software, storage systems and microelectronics.

Some of the industry participants also provide technological solutions (both products and services) to aid organizations connect, interact and transact with customers. There are others that develop and market information recognition and data entry software, systems and technologies.

The industry has benefited immensely from rise of more advanced forms of data management, rapid shift from traditional silos, increasing demand to integrate deployment techniques and modern application developments.

Some of the prominent industry players include Hewlett Packard Enterprise Company (HPE) and International Business Machines Corporation (IBM).

Here are the three major themes in the industry:

  • The industry is benefiting from rising demand of integrated solution across small, medium and large-scale enterprises and increasing investments in IoT, big data, AI and blockchain software technologies. Moreover, business analytics, cloud computing, mobile, security and social business present significant prospects.
  • Additionally, growing adoption of multi-cloud model to achieve better scalability and attain improved resource utilization is also expanding the scope for the industry participants. Rising technological advancements such as cloud and hardware/software virtual technologies are anticipated to favorably impact the industry. As growth and investment opportunities in developed countries continue to slow down, we believe that emerging economies will play a crucial role in the days ahead.
  • Nevertheless, industry participants are facing challenges owing to the ongoing and heavily time-consuming business model transition to cloud. Moreover, spending across the Data-Center Systems primarily due to component shortages like memory and CPUs and deceleration in hyperscale spending is likely to dampen prospects of the industry participants.

Zacks Industry Rank Indicates Bleak Prospects

The Zacks Computer – Integrated Systemsindustry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #206, which places it at the bottom 19% of 256 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group’s earnings growth potential. The industry’s current-year earnings estimate moved 1.5% south over the past year.

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 Lags Sector and S&P 500

The Zacks Computer – Integrated Systems industry has underperformed the broader sector as well as the Zacks S&P 500 composite over the past year.

The industry has declined 3.8% over this period against the S&P 500’s rally of 1.8%. Meanwhile, the broader sector declined 0.2%.

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 integrated systemsstocks, we see that the industry is currently trading at 10.25X compared with the S&P 500’s 18.43X. It is also below the sector’s forward-12-month P/E of 22.42X.

Over the past five years, the industry has traded as high as 13.13X and as low as 4.35X, with the median being at 10.28X, as the chart below shows.

Price-to-Earnings TTM

Price-to-Earnings TTM


Bottom Line

Robust adoption of cloud computing, big data and shift from traditional silos will continue to drive the industry. However, industry is facing challenges owing to the ongoing and heavily time-consuming industry model transition to cloud.

Currently, none of the stocks in the Zacks Computer – Integrated Systems industry flaunts either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

However, we are presenting three stocks with a Zacks Rank #3 (Hold) that investors may currently hold on to.

Agilysys, Inc. (AGYS): The provider of innovative IT solutions to corporate and public-sector customers, carries a Zacks Rank #3.

Price & Consensus: AGYS

Hewlett Packard Enterprise Company: Headquartered in Palo Alto, CA, the company carries a Zacks Rank #3. It has a long-term expected EPS growth rate of 6.33%.

Price & Consensus: HPE

NCR Corporation (NCR): Headquartered at Duluth, GA, the company carries a Zacks Rank #3. It has a long-term expected EPS growth rate of 4%.

Price & Consensus: NCR

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

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NCR Corporation (NCR) : Free Stock Analysis Report
International Business Machines Corporation (IBM) : Free Stock Analysis Report
Hewlett Packard Enterprise Company (HPE) : Free Stock Analysis Report
Agilysys, Inc. (AGYS) : Free Stock Analysis Report
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