The tax reform is a boon for the technology services industry with most companies preparing to pour tax savings into technologies, mergers and acquisitions.
Industry participants are adopting enhanced technologies such as Internet of Things (IoT) and edge computing, cloud, artificial intelligence (AI), blockchain and biometrics, advanced data analytics and machine learning.
Also, these companies are gearing up to assess global operations, which include supply chain, treasury, distribution, sales and marketing and finance to function more effectively. These trends are expected to continue boosting demand for technology services.
The Zacks Technology Servicesindustry is a group within the broader Zacks Business Services Sector. The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid growth prospects in the near term. It carries a Zacks Industry Rank #81, which places it in the top 32% of more than 250 Zacks industries.
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 $25 billion and the same for Aptiv is $18.9 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.
IQVIA clearly scores over Aptiv in terms of price performance. In the past year, shares of IQVIA have gained 21.8%, while the same for Aptiv declined 24.9%. The industry has declined 4.1% in the same time frame.
Earnings growth along with stock price gains is often an indication of a company’s strong prospects.
IQVIA’s 2018 earnings are projected to grow 18.4% compared with 11% for Aptiv. Looking at 2019, IQVIA‘s earnings are projected to grow 13.1%, while that of Aptiv are expected to increase 7.3%.
Thus, IQVIA has an edge over Aptiv in terms of current year and next year earnings growth.
The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.
Based on current-quarter earnings estimate revisions in the past 60 days, IQVIA is better placed. The Zacks Consensus Estimate for IQVIA’s current-year earnings inched up 0.2%, while that for Aptiv was unchanged.
For the next year, the consensus mark for IQVIA dipped 0.2% and that for Aptiv declined 2.5%.
Earnings Surprise History
The earnings surprise history of a stock provides investors an idea of the stock’s performance in the previous quarters.
IQVIA and Aptiv have an impressive trailing four quarter earnings surprise history. However, IQVIA delivered higher average positive surprise of 3.8% 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 10.6%, IQVIA not only compares favorably with Aptiv’s figure of 9.7% but also has a lead over the industry’s 6.8% TTM net margin.
EV/EBITDA is a commonly used multiple for the technology services industry. 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 20.72, the industry’s figure is 11.44X and Aptiv’s figure is 9.7X.
Our comparative analysis shows that IQVIA scores over Aptiv in terms of price performance, current and next year expected earnings growth, current year earnings estimate revisions, earnings surprise history and net margin.
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 Booz Allen Hamilton BAH and Waste Connections WCN, each carrying a Zacks Rank #2.
Long-term expected EPS (three to five years) growth rate for Booz Allen Hamilton and Waste Connections is 14.4% and 11.7%, respectively.
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