The technology services industry is continuously adopting and implementing technologies like the Internet of Things (IoT) and edge computing, cloud, artificial intelligence (AI), blockchain and biometrics, advanced data analytics and machine learning. This trend should keep increasing demand for the services.
Given the significant savings post the tax reform, most of the technology companies are gearing up to invest the same for enhancing shareholders’ value or to fund mergers and acquisitions to expand into new markets and technologies. Industry participants are also gearing up to assess global operations, which include supply chain, treasury, distribution, sales and marketing and finance, to function more effectively.
The industry includes consumer as well as business-oriented products and services. It comprises companies with diversified end markets and customer base.
Given this backdrop, it is not a bad idea to undertake a comparative analysis of two Zacks Technology Services stocks — IQVIA Holdings Inc. IQV and Delphi Technologies PLC DLPH. Both the stocks are part of the broader Zacks Business Services sector (one of the 16 Zacks sectors). While IQVIA Holdings has a market capitalization of $28.30 billion, Delphi Technologies’ market cap is $1.74 billion.
As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
IQVIA Holdings clearly scores over Delphi Technologies in terms of price performance. Over the past year, shares of IQVIA Holdings have gained 37.8%, outperforming the 14% rise of the industry it belongs to. Shares of Delphi Technologies have however declined 58.6% in the same time frame.
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
IQVIA Holdings’ first-quarter 2019 earnings are projected to grow 12.7% while that of Delphi Technologies are expected to decline 56.9%. For the full year, IQVIA Holdings’ earnings are projected to grow 14.4% while that of Delphi Technologies are expected to decrease 29%.
Thus, IQVIA Holdings has an edge over Delphi Technologies in terms of quarterly and yearly projected earnings growth.
Earnings Surprise History
The earnings surprise history of a stock helps investors have an idea of the stock’s performance in the previous quarters.
IQVIA Holdings and Delphi Technologies have an impressive earning surprise history, with IQVIA Holdings’ earnings surpassing the Zacks Consensus Estimate in each of the previous four quarters. Delphi Technologies’ earnings outpaced the consensus mark in three of the past four quarters.
However, Delphi Technologies delivered a higher average positive earnings surprise of 8.6% compared with 3.2% for IQVIA Holdings.
Earnings Estimate Revisions
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.
Based on first-quarter and full-year 2019 earnings estimate revisions in the past 60 days, IQVIA Holdings is better placed.
The Zacks Consensus Estimate for first-quarter 2019 earnings has increased 2% for IQVIA Holdings while the same has decreased 26.3% for Delphi Technologies. For 2019, estimates for IQVIA Holdings have increased 1.6%, while the same for Delphi Technologies have declined 6.6%.
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.
While IQVIA Holdings has a TTM net margin of 2.5%, the same stands at 7.4% for Delphi Technologies. Though both the stocks compare unfavorably with the industry’s figure of 20.9%, Delphi Technologies has a higher TTM net margin than IQVIA Holdings.
EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization) ratio is the commonly used metric for valuing technology services stocks because of their high debt levels.
We observe that IQVIA Holdings and Delphi Technologies have EV/EBITDA ratio of 14.2 and 4.4, respectively compared with the industry’s figure of 13.2. The numbers clearly show that Delphi Technologies is not only cheaper than IQVIA Holdings but also undervalued compared to the industry it belongs to.
Our comparative analysis shows that IQVIA Holdings scores over Delphi Technologies in terms of price performance, quarterly and yearly projected earnings growth and earnings estimate revisions. Delphi Technologies has an edge in terms of earnings surprise history and net margin.
A strong share price rally in the past year has led to a relatively rich valuation for IQVIA Holdings compared to Delphi Technologies.
Stocks to Consider
A few better-ranked stocks in the broader Zacks Business Services sector are Interpublic IPG, Omnicom OMC and Paychex PAYX, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term expected EPS (three to five years) growth rate for Interpublic, Omnicom and Paychex is 2.7%, 4.7% and 8.8%, respectively.
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Interpublic Group of Companies, Inc. (The) (IPG) : Free Stock Analysis Report
Omnicom Group Inc. (OMC) : Free Stock Analysis Report
Delphi Technologies PLC (DLPH) : Free Stock Analysis Report
Paychex, Inc. (PAYX) : Free Stock Analysis Report
IQVIA Holdings Inc. (IQV) : Free Stock Analysis Report
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