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 companies also provide technological solutions (both products and services) to aid organizations connect, interact and transact with customers, and strengthen customer relationships. There are others that develop and markets information recognition and data entry software, systems and technologies.
Rise of more advanced forms of data management, rapid shift from traditional silos, increasing demand to integrate deployment techniques and modern application developments have put the industry on growth trajectory.
Here are the three major themes in the industry:
- The industry is benefiting from increasing demand across several small, medium and large-scale enterprises and increased investments in Internet of Things (IoT), big data, artificial intelligence (AI) and blockchain. Moreover, business analytics, cloud computing, mobile, security and social business represent significant growth opportunity for the industry participants.
- Additionally, factors like business and global expansion should bolster the industry’s top line. 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 virtual technologies are anticipated to favorably impact players in this industry. As growth and investment opportunities in developed countries continue to slow down, we believe that emerging economies will play a key role for the industry players.
- However, the Computer – Integrated Systems industry is facing challenges owing to the ongoing and heavily time-consuming industry model transition to cloud. Moreover, spending across the Data-Center Systems primarily due to component shortages like memory and CPUs coupled with deceleration in hyperscale spend are likely to dampen growth prospects of the industry participants.
Zacks Industry Rank Indicates Cloudy Prospects
The Zacks Computer – Integrated Systemsindustry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #220, which places it at the bottom 14% 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.
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 5% over this period against the S&P 500’s rally of 4.5% and the broader sector’s growth of 3.9%.
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 9.82X compared with the S&P 500’s 17.75X. It is also below the sector’s forward-12-month P/E of 20.06X.
Over the past five years, the industry has traded as high as 11.19X, as low as 8.30X and at the median of 10.28X, as the chart below shows.
Robust adoption of cloud computing, big data and shift from traditional silos will continue to aid revenue growth for the industry participants. 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 Systemsindustry flaunts either a Zacks Rank #1 (Strong Buy) or a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, we are presenting three stocks with a Zacks Rank #3 (Hold) that investors may currently hold on to.
USA Technologies, Inc. (USAT):The provider of networked credit card and other non-cash systems in the vending, commercial laundry, hospitality and digital imaging industries, carries a Zacks Rank #3.
International Business Machines Corporation (IBM): This Armonk, NY-based company has a Zacks Rank #3 and a long-term expected EPS growth rate of 3.96%.
Hewlett Packard Enterprise Company (HPE): Headquartered in Palo Alto, CA, the company carries a Zacks Rank #3. It has a long-term expected EPS growth rate of 6.33%.
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