U.S. Markets closed

Unisys Poised to Benefit from Portfolio Rationalization

Zacks Equity Research

On Jul 11, we issued an updated research report on information technology firm, Unisys Corporation UIS.

The information technology industry is presently undergoing a transition phase, forging new disruptive trends in cloud mobility, big data, social computing and increasing awareness of cyber security. In order to capitalize on the trends, Unisys is rationalizing its services and solution portfolio by shifting its offerings to cloud-based and software-as-a-service delivery models. Unisys continued its transition to a more asset-lite business model, which resulted in reduced CapEx needs and improved cash flow. The company successfully executed its vertical go-to-market strategy, including hiring leaders of key sectors. The company is also concentrating on business opportunities in fewer, more profitable sectors in the IT marketplace.

Furthermore, Unisys is focusing its resources and investments in four targeted, high-potential market areas, including security (IT security and physical security), data center transformation and outsourcing services, end-user outsourcing and support services, and applications modernization and outsourcing services. As it seeks to keep up with the evolution in the IT industry, the company’s services unit looks set to take advantage of growth prospects in higher-margin services. Unisys has secured quite a few contracts in these segments recently that should propel its top-line growth in the coming quarters.

In addition, Unisys has been restructuring its business to improve profitability. This restructuring strategy includes selling non-core businesses and revamping its sales strategy while investing in a few higher-growth areas such as outsourcing. We expect the company to continue with its cost-control initiatives and put greater effort toward sales growth, as it strives to overcome its operational weaknesses. Unisys is focusing more on building specialized industry skills and resources required to win industry-specific project opportunities. The company is investing heavily in developing a team dedicated to pursuing growth opportunities for application-managed services both for existing and new clients. These application-based managed services capability will enable Unisys to more effectively pursue long-term application outsourcing opportunities, associated application modernization and implementation project work.

However, Unisys has underperformed the Zacks categorized Information Technology Service industry, with an average loss of 15.1% in the last three months against a 13.0% gain for the latter. It faces stiff competition in the information services and technology marketplace from consulting and other professional services firms, systems integrators, outsourcing providers, infrastructure services providers, computer hardware manufacturers and software providers. Consequently, Unisys has to continually invest in new technologies that act as value drivers and can provide a hedge against stiff competition. These incremental investments increase operating expenses, thus squeezing margins and negatively impacting profitability.

Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the industry include CDW Corporation CDW, EPAM Systems, Inc. EPAM and MAM Software Group, Inc. MAMS, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CDW Corporation has topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 5.9%.

EPAM Systems has a long-term earnings growth expectation of 20%. It surpassed estimates thrice in the trailing four quarters with an average positive earnings surprise of 3.2%.

MAM Software Group has topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 92.9%.

More Stock News: 8 Companies Verge on Apple-Like Run

Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs.

A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Unisys Corporation (UIS) : Free Stock Analysis Report
EPAM Systems, Inc. (EPAM) : Free Stock Analysis Report
CDW Corporation (CDW) : Free Stock Analysis Report
MAM Software Group, Inc. (MAMS) : Free Stock Analysis Report
To read this article on Zacks.com click here.