Zacks Industry Outlook Highlights: Hewlett Packard, ZoomInfo and NCR Corp
For Immediate Release
Chicago, IL – November 12, 2021 – Today, Zacks Equity Research discusses Computer - Integrated, including Hewlett Packard Enterprise Company HPE, ZoomInfo Technologies Inc. ZI and NCR Corporation NCR.
Link: https://www.zacks.com/commentary/1826962/3-stocks-to-watch-in-a-challenging-technology-solutions-industry
The coronavirus pandemic-led macroeconomic downturn has impacted the Zacks Computer – Integrated Systems industry negatively. Supply chain disruptions, destabilization of international trade and significant delays in customer acceptance have resulted in high levels of backlog and cast a shadow on the industry’s prospects.
Nonetheless, Hewlett Packard, ZoomInfo and NCR Corp are a few industry participants to watch as they are benefiting from the rise in advanced forms of data management, the rapid shift from traditional silos, increased demand for integration of deployment techniques as well as modern application development.
Industry Description
The Zacks Computer – Integrated Systems industry comprises companies that provide advanced information technology solutions, including computer systems, software, storage systems and microelectronics. These industry players are increasing investments in data modernization and analytics, cyber defense, remote work, automation and contact-less services, customer & employee experience, and supply-chain modernization, which accelerate growth in digital transformation services.
Some industry participants also provide technological solutions (both products and services) to aid organizations in connecting, interacting and transacting with customers. Others develop and market information recognition, data entry software, systems as well as technologies.
4 Computer -Integrated Systems Industry Trends to Watch Out For
Integrated Solutions Driving Demand: The industry is benefiting from rising demand for integrated solutions across small, medium and large-scale enterprises, along with increasing investments in IoT, big data, AI and blockchain software technologies. Moreover, business analytics, cloud computing, mobile, and security and social businesses present significant opportunities to an increasing number of remote workers in the wake of the coronavirus-induced work-from-home wave. The industry players are anticipated to benefit from recovering global IT spending, as predicted by Gartner.
Solid Adoption of Multi-Cloud Model: Growing adoption of the multi-cloud model to achieve better scalability and attain improved resource utilization is also expanding the scope of the industry participants. Cloud and hardware/software virtual technologies are anticipated to favorably impact the industry. As growth and investment opportunities in developed countries continue to slow down, we believe that emerging economies will play a crucial role in the days ahead.
Coronavirus Hurts Supply and Demand: Due to coronavirus-led uncertainty over global economic and business activities, industry participants are witnessing supply constraints, softness in server demand and cognitive applications, as well as delays in customer acceptance, in turn resulting in high levels of backlog, particularly in Compute, High Performance Computing & Mass Storage Class and Storage. Moreover, volatility in foreign exchange — primarily due to the current macro-economic scenario and headwinds in the emerging markets — does not bode well for the industry.
Semiconductor Chip Shortage Mars Prospects: Industry participants are facing challenges owing to the ongoing and heavily time-consuming business model transition to cloud. Further, lower spending across Data-Center Systems — primarily due to component shortages like memory and CPUs, as well as deceleration in hyperscale spending — is likely to dampen the prospects of the industry participants.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Computer – Integrated Systems industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #210, which places it in the bottom 17% 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 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 position 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. Since Dec 31, 2020, the industry’s earnings estimate for 2021 has moved down 1.3%.
Despite the gloomy industry outlook, a few stocks have the potential to outperform the market based on a strong earnings outlook. 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 Computer and Technology sector and Zacks S&P 500 composite over the past year.
The industry has risen 18% over this period compared with the S&P 500 and broader Computer and Technology sector’s respective rallies of 32.6% and 37.9%.
Industry's Current Valuation
On the basis of trailing 12-month P/S, which is a commonly used multiple for valuing computer integrated systems stocks, we see that the industry is currently trading at 1.54X compared with the S&P 500’s 5.17X. It is also below the sector’s trailing 12-month P/S of 6.01X.
Over the past five years, the industry has traded as high as 1.59X and as low as 1.02X, with the median being at 1.27X.
3 Computer-Integrated Systems Providers to Watch
Hewlett Packard Enterprise: HPE is benefiting from improved supply-chain execution and higher demand for its cloud services owing to the ongoing digital transformation.
HPE’s efforts to shift focus to higher-margin offerings like Intelligent Edge and Aruba Central Hyperconverged Infrastructure are aiding bottom-line growth.
HPE’s target of saving at least $800 million annually by fiscal 2022-end through the cost optimization plan is a positive. Moreover, Hewlett Packard’s multi-billion-dollar investment plan across expanding networking capabilities will help diversify the business from server and hardware storage markets as well as boost margins in the long run.
Shares of this Zacks Rank #1 (Strong Buy) company have risen 32.7% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for its fiscal 2021 earnings has been steady at $1.93 per share over the past 60 days.
ZoomInfo Technologies: Growing traction of this Zacks Rank #3 company’s go-to-market intelligence platform due to elevated consumer demand for data and insights is a major positive.
ZoomInfo is benefiting from several enhancements introduced to its platforms, such as a real-time intelligence feed, mobile experience improvements to Quick Search, and redesigns of contact profile alerts and the homepage. ZoomInfo anticipates these innovations to fuel further user engagement on its platform.
ZoomInfo also benefits from its resilient subscription-based model amid the coronavirus outbreak.
The Zacks Consensus Estimate for its 2021 earnings has been steady at 51 cents per share over the past 30 days. ZoomInfo’s shares have increased 46.5% year to date.
NCR Corp.: This Zacks Rank #3 (Hold) company is benefiting from strong demand for its software and service solutions across banking, retail and hospitality industries. NCR’s shares have risen 15.9% year to date.
The coronavirus-induced rapid adoption of digital banking solutions bodes well for NCR. Notably, the company has received positive feedback from customers on the new features and functionality of its solutions. It has also begun witnessing higher growth.
NCR’s recent acquisition of Cardtronics is anticipated to drive the acceleration of the NCR-as-a-service strategy. Cardtronics’ robust debit network will further expand NCR’s payments platform and help it connect to retail and bank customers, thereby facilitating customer acquisition.
NCR continues to see traction of its point-of-sale and self-checkout solutions across food-drug-merchandise and convenience-fuel-retail customers.
However, a decline in ATM revenues and stiff competition are major concerns.
The Zacks Consensus Estimate for the company’s 2021 earnings has been revised downward by 3.4% over the past 60 days to $2.76 per share.
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