ServiceNow, EPAM Systems, CDW Corp and DXC Technology

Immediate release

Chicago, Illinois-September 30, 2021-Today, Zacks Equity Research discussed IT services, including ServiceNow, Inc. NOW, EPAM Systems, Inc. EPAM, CDW Corporation CDW, and DXC Technology Company DXC.

Link: https://www.zacks.com/commentary/1802353/3-it-services-stocks-to-buy-from-a-challenging-industry

The macroeconomic recession triggered by the coronavirus pandemic has led to a downturn in IT spending, which has affected the adoption of consulting and transaction processing solutions. Therefore, the current outlook for the Zacks computer-IT service industry is tedious.

However, the ongoing digitalization and diversification of IT services have improved the prospects of industry participants to a certain extent. Serve immediately, EPAM system with CDW Company There are some stocks that have benefited from this trend. In addition, the strong demand for advanced IT service infrastructure solutions for remote work and digital healthcare is a boon for these IT service providers.

Industry description

Zacks Computers-The IT Services industry includes companies that provide consulting, communications, IT management and operations, cloud-based Web development platforms, customer relationship management, professional information solutions, and outsourcing services. Industry participants cater to a wide range of end markets, including manufacturing, banking, insurance, healthcare, government agencies, and public sector agencies.

Industry participants like DXC technology Focus on network business, cloud computing market and big data business to support the prospects. Digital transformation is helping companies such as CDW and ServiceNow gain market share.

What is shaping the future of computers-the IT service industry?

Weak IT spending will affect the outlook: Due to restricted global economic activities, the Coronavirus crisis has led to a downturn in small and medium-sized enterprises (SMB) spending, which has affected the adoption of IT services, mainly consulting service applications, infrastructure management and transaction processing platforms. Industry participants are expected to bear the brunt of the slowdown in IT spending.

In addition, due to supply chain constraints caused by the coronavirus, changes in consumer purchase patterns may inhibit the industry’s prospects. The weakness of the COVID-19 pandemic in the tourism and hotel end markets remains a cause for concern. In addition, due to the continuing trend of working from home, the shift from corporate needs to consumer-centric needs does not bode well for industry participants.

The digital wave goes smoothly: Most industry players are modernizing their traditional legacy-oriented business processes to keep up with the evolving IT services. The goal is to integrate the synergies of emerging technologies, including cloud, Internet of Things, artificial intelligence and analytics.

In addition, the rising Internet penetration rate in emerging markets (especially the entire Asia-Pacific region) is a tailwind. For example, DXC focuses on network business, cloud computing market and big data business to support the prospects. In addition, CDW is benefiting from the growth of all end markets and is playing strength in the small business, government, and healthcare verticals.

New normal trends boost prospects: After the wave of working from home triggered by the coronavirus crisis, with the increase in the number of remote workers, the growth of the industry is expected to accelerate in the coming days. In this era of digital transformation, companies are actively seeking common ground between on-premises and cloud infrastructure, which will enable them to provide flexible and easy-to-adopt hybrid solutions.

It is worth noting that the demand for remote work, digital healthcare and online learning solutions triggered by the coronavirus has accelerated the adoption of digital transformation products by enterprises, which bodes well for the industry.

Zacks industry rankings indicate bleak prospects

Zacks Computers-IT Services is located in the wider Zacks Computers and Technology department. It ranks 205th in the Zacks industry and is the bottom 18% of more than 250 Zacks industries.

The group’s Zacks industry ranking, which is the average of the Zacks rankings of all member stocks, indicates a bearish near-term outlook. Our research shows that the Zacks top 50% of industries outperform the bottom 50% by more than 2 to 1.

The reason why the industry ranks the bottom 50% in the Zacks ranking industry is because the overall profit prospects of the constituent companies are negative. From the perspective of the overall earnings forecast revision, analysts seem to be pessimistic about the group’s earnings growth potential. Since November 30, 2020, the industry’s profit forecast for the current year has fallen by 7.2%.

Although the industry outlook is gloomy, some stocks may outperform the market based on strong earnings prospects. But before we introduce the top industry selections, it is worth taking a look at the shareholder returns and current valuations of the industry.

Industry outperforms the Standard & Poor’s 500 Index and lags behind the industry

The performance of the Zacks Computer-IT Services industry has lagged behind the Zacks S&P 500 composite sector, but has lagged behind the broader Zacks Computers and Technology in the past year.

During this period, the industry’s rate of return was 40.1%, while the S&P 500 index and the industry as a whole saw gains of 41.2% and 35.1%, respectively.

Industry current valuation

Based on the EV/EBITDA ratio for the past 12 months (which is a common multiple for evaluating IT service companies), the industry’s current transaction price is 37.87 times, which is higher than the S&P 500’s 15.93 times and the industry’s 16.10 times.

In the past 5 years, the industry’s P/E ratio was as high as 38.96X and as low as 18.98X, with a median of 27.34X.

3 Only prospective IT service stocks

EPAM system: The company based in Newton, Pennsylvania provides software engineering and IT consulting services. EPAM benefits from continuous digital transformation and continues to focus on improving customer engagement and product development. The strong performance of the company’s largest vertical industry business information and media is driving its revenue growth.

The company is benefiting from growth in all regions and multiple vertical industries. Gartner’s latest forecast of global IT spending is in favor of EPAM. Global IT spending in 2021 is expected to be US$4.2 trillion, an increase of 8.6% over 2021. The research company predicts that this year’s global IT service spending will increase by 9% year-on-year to reach US$1.11 trillion.

EPAM currently ranks first in Zacks (Strong Buy). You can view the full list of today’s Zacks #1 Rank stocks here.

The Zacks consensus estimate of its fiscal 2021 earnings has risen by 13.6% in the past 60 days to $8.40 per share. The stock has risen 75.9% in the past year.

CDW Company: This Vernon Hills, Illinois company has benefited from continued digital transformation and increased demand for products that enable remote work and operational continuity programs during the COVID-19 pandemic. It also benefits from the growth of the education and healthcare end markets.

In addition, the acquisition of Scalar Decisions and Aptris enhanced its capabilities and expanded its product offerings. The progress of network management, storage management and operating system software is a tailwind. CDW’s core advantages of providing first-class services and easily accessible technology will promote long-term growth.

Zacks’ consensus estimate of the Zacks Rank #2 (Buy) company’s 2021 earnings has been revised up by 4.6% over the past 60 days to $7.70 per share. The stock has risen 55.7% in the past year.

Serve immediately: This Zacks ranks second to provide cloud computing services that can automate digital workflows to accelerate enterprise IT operations. The company’s Now Platform enables companies to increase productivity by simplifying system processes.

ServiceNow is benefiting from strong growth in subscription revenue driven by the digital transformation of enterprises. As enterprises continue to transition to the cloud, the company is preparing to increase the adoption rate of its Now platform. Its workflow solutions often win customers.

In addition, ServiceNow’s expanding global reach, solid partner base and strategic acquisitions are expected to boost growth prospects. In addition, strategic alliances with companies such as Microsoft are also a tailwind.

Zacks’ consensus estimate of the Santa Clara, California-based company’s end-of-2021 line has been revised upwards by 1.4% to $5.80 in the past 60 days. The company’s stock price has risen by 26.3% in the past year.

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