The Zacks Computer - Services industry is suffering from broader macroeconomic challenges that have resulted in an elongated sales cycle, lower conversion rates and customer delays in making purchase decisions. However, industry participants like CACI International CACI, CSG Systems International CSGS, and Innodata INOD are riding on the ongoing digital transformation, which is increasing the demand for cloud-enabled software solutions. The rising adoption of digital transformative techniques in healthcare and financial services has been a silver lining for industry participants. The growing need for consulting, research and cyber-security solutions, stringent regulations, digital healthcare and the growing adoption of business automation solutions is likely to continue driving the industry’s prospects.
Industry Description
The Zacks Computer - Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include consulting and research solutions, security solutions, business support solutions, systems engineering, and software application development solutions. The industry participants cater to varied end markets and customers, including intelligence, defense, U.S. government agencies, communications, banking, financial services, insurance, healthcare, and media and entertainment. Consultancy companies in the industry are helping clients in their ongoing digital transformation. They provide end-to-end services, including application development, integration and maintenance, technology infrastructure management and business process services.
3 Computer-Services Industry Trends to Watch
Remote & Hybrid Work Trends Boost Prospects: The industry’s growth is expected to accelerate in the days ahead based on an increasing number of remote and hybrid workers. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures, enabling them to provide flexible and easily adaptable hybrid solutions. The growing remote-working trend has led to increased demand for cloud and cost-efficient business support solutions, as well as other digital monetization solutions, which bode well for the industry.
Growing Cyber Attacks are Creating a Tailwind: The increasing number of cyber-attacks and related security risks are expected to keep the industry’s momentum alive. Government agencies are ideal targets for cyber-attacks, as they are entrusted with sensitive information. Therefore, the growing need for cyber security solutions and services in critical areas like defense, intelligence and civilian agencies of the U.S. government bodes well for industry players.
Regulatory Compliance Drives Demand: The companies in this industry are likely to benefit from increasingly complex network systems and sensitive information environments in which governments and businesses operate. The industry participants are keeping pace with the global regulatory and business practice requirements, thereby helping customers incorporate the best practices while complying with governmental and industry norms.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #73, which places it in the top 29% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Given the bullish industry outlook, there are a number of stocks worth buying currently. But before we present those stocks, let’s take a look at the industry’s recent stock market performance and valuation.
Industry Lags Sector and S&P 500
The Zacks Computer – Services industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index over the past year.
The industry has risen 27.4% over this period compared with the S&P 500’s appreciation of 36% and the broader sector’s return of 40.3%.
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 stocks, we see that the industry is currently trading at 20.29X compared with the S&P 500’s 22.66X and the sector’s forward-12-month P/E of 27.35X.
Over the last five years, the industry has traded as high as 20.29X and as low as 13.14X, with a median of 16.21X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
3 Computer-Services Stocks to Buy Right Now
Innodata: This Zacks Rank #1 (Strong Buy) company is benefiting from strong demand for generative AI training data. Increasing demand for Agility is notable.
Innodata now expects 2024 revenues to grow between 88% and 92% compared with its previous guidance of 60% growth.
The Zacks Consensus Estimate for INOD’s 2024 earnings has been steady at 21 cents per share over the past 30 days. The stock has surged 464% year to date.
Price and Consensus: INOD
CSG Systems International: This Zacks Rank #2 (Buy) company is benefiting from new logo sales wins and deal expansions.
CSGS now expects to deliver organic revenue growth for 2024 in line with its long-term guidance of 2% to 6%. It is benefiting from strong performance from its top two customers, Charter and Comcast.
CSG recently announced that it has extended its contract with Comcast through year-end 2030.
The Zacks Consensus Estimate for CSGS’ 2024 earnings has increased by a couple of cents to $4.28 per share over the past 30 days. The stock has returned 5.6% in the year-to-date period.
Price and Consensus: CSGS
CACI’s sustained focus on its strategy to grow in larger markets and leverage mergers and acquisitions to further increase its market share and create long-term value for its shareholders is praiseworthy.
The Zacks Consensus Estimate for CACI’s fiscal 2025 earnings has increased by four cents to $23.17 per share over the past 30 days. The stock has returned 76.8% in the year-to-date period.
Price and Consensus: CACI
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>CACI International, Inc. (CACI) : Free Stock Analysis Report
CSG Systems International, Inc. (CSGS) : Free Stock Analysis Report
Innodata Inc. (INOD) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
