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Computer Integrated Systems Outlook: Growth Remains Steady

Zacks Equity Research

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

A few companies also provide technological solutions (both products and services) to aid organizations connect, interact and transact with customers, and solidify 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 set the industry on a 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, improving operating leverage through productivity gains and increased investments. Big Data and business analytics, cloud computing, mobile, security and social business represent significant growth opportunity for the industry players.
  • Additionally, factors like business and global expansion, financial efficiency and core competency should boost the industry’s top line. 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 players in this industry.
  • However, the Computer – Integrated Systems industry is facing challenges owing to the ongoing and heavily time-consuming industry model transition to cloud. Further, foreign exchange volatility is a significant headwind. Moreover, any sluggishness in global economic growth and shift in consumers buying patterns is likely to dampen growth prospects of the industry participants.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Computer – Integrated Systems industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #111, which places it at the top 44% 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 continued outperformance 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 top 50% of the Zacks-ranked industries is a result of solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have been revised upward by 4.5%.

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 lagged the broader sector as well as the Zacks S&P 500 composite over the past year.

The industry has lost 25.7% over this period compared with the S&P 500’s and the broader sector’s respective decline of 7.8% and 9.8%.

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 8.39X compared with the S&P 500’s 16.37X. It is also below the sector’s forward-12-month P/E of 17.15X.

Over the past five years, the industry has traded as high as 13.13X, as low as 4.39X and at the median of 10.50X, as the chart below shows.

Bottom Line

Robust adoption of cloud computing, big data and shift from traditional silos will continue to aid revenue growth for the industry participants. However, sluggishness in global economic growth and shift in consumers buying patterns will likely be the dampeners.

Here, we present one stock sporting a Zacks Rank #2 (Buy) that is well positioned to gain amid the prevailing challenges. There are also a couple of stocks with a Zacks Rank #3 (Hold) that investors could hold on to.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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, sports a Zacks Rank #2.

IBM Corporation (IBM): This Armonk, NY-based company has a Zacks Rank #3 and a long-term expected EPS growth rate of 4.97%.

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 5.34%.

 

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USA Technologies, Inc. (USAT) : Free Stock Analysis Report
 
International Business Machines Corporation (IBM) : Free Stock Analysis Report
 
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