Growing digitization and business automation across the globe are expected to drive the demand for IT services. In addition, remote working and increased adoption of data analytics in almost every business have been the factors contributing to the industry's growth.
The rising adoption of hybrid work arrangements worldwide and the emergence of metaverse are projected to keep the trends going this year. According to Gartner, global IT spending is expected to reach $4.5 trillion in 2022, representing a 5.1% increase from 2021.
Given this backdrop, we think it could be prudent to invest in IT service stocks International Business Machines Corporation (IBM), Cognizant Technology Solutions Corporation (CTSH), Cognizant Technology Solutions Corporation (CTSH), and Teradata Corporation (TDC), which are outperforming the broader market.
International Business Machines Corporation (IBM)
IBM in Armonk, N.Y., provides integrated solutions and services worldwide and operates through four business segments: Software that provides a hybrid cloud platform; Consulting that offers business transformation; Infrastructure services that offer on-premises and cloud-based server and storage solutions; and Financing, which provides lease, installment payment, loan financing.
Recently, IBM announced new solutions with IT management software company Flexera and IBM Turbonomic Application Resource Management (ARM) to help the organizations use automation to streamline IT asset management. These new solutions are focused on helping lower the cost of businesses and automating the increasingly difficult task of software license compliance and optimization.
Also, this month, IBM announced a multi-million-dollar investment in its resources to help businesses prepare for and manage the rising threat of cyberattacks to organizations across the Asia Pacific (APAC) region. The main purpose of this investment is the new IBM Security Command Center for training cybersecurity response techniques through highly realistic, simulated cyberattacks, developed to prepare everyone from C-Suite through technical staff.
IBM's total sales increased 6.5% year-over-year to $16.70 billion for the fourth quarter, ending Dec. 31, 2021. Its non-GAAP operating earnings increased 80% from its year-ago value to $3.04 billion, while its net income grew 72% from its prior period quarter to $2.33 billion. Its non-GAAP EPS increased 78.2% year-over-year to $3.35.
The consensus EPS estimate for its fiscal year 2022 represents 26.5% year-over-year growth to $10.03. Analysts expect its revenue to increase 5.9% year-over-year to $60.75 billion for its fiscal 2022. In addition, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 2.3% in price over the past year and 2.1% over the past three months.
IBM's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock also has a B grade for Value and Quality. Within the Technology - Services industry, it is ranked #18 of 77 stocks.
To see additional POWR Ratings for Growth, Sentiment, Stability, and Momentum for IBM, click here.
Cognizant Technology Solutions Corporation (CTSH)
CTSH is a professional services company that provides consulting, technology, and outsourcing services internationally. The Teaneck, N.J.-based concern has four operating segments: Financial Services; Healthcare; Products and Resources; and Communications, Media, and Technology. It also offers customer experience enhancement, robotic process automation, analytics, and AI services.
CTSH announced its collaboration with Microsoft this month to deliver a new digital health solution to augment remote patient monitoring for improved medical care. CTSH's new solution is the first of several planned offerings that integrate remote patient monitoring and virtual health by using smartwatches, blood pressure monitors, and glucose meters to collect and communicate patient health data to providers. Also, this new solution is a leveraging component of the Microsoft Cloud for Healthcare.
In January, CTSH announced its partnership with Uptake, a pioneer in industrial intelligence software-as-a-service, to enable unified data management for the energy and utility industries. This collaboration combines Uptake Fusion, which collects, moves, organizes, and curates data in Microsoft Azure to power advanced industrial analytics and asset performance management with the industry consulting, systems integration, and application services of CTSH.
In the fourth quarter, ended Dec. 31, 2021, CTSH’s revenue increased 14.2% year-over-year to $4.78 billion. Its operating income grew 57.4% from its year-ago value to $732.00 million, while the net income increased 82.3% from its prior period to $576.00 million. The company's EPS rose 86.4% year-over-year to $1.10.
Analysts expect CTSH's revenue to increase 9.6% year-over-year to $4.82 billion for the first quarter, ending March 31, 2022. The company's EPS is expected to grow 6.9% year-over-year to $1.04 in the first quarter ending March 31, 2022. Also, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters. The company's shares have soared 11.2% in price over the past year and 25.3% over the past nine months.
CTSH's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Quality. Within the A-rated Outsourcing - Tech Services industry, it is ranked #2 of 11 stocks.
In total, we rate CTSH on eight distinct levels. Beyond what we have stated above, we have also given CTSH grades for Growth, Value, Momentum Stability, and Sentiment. Get all the CTSH ratings here.
Jack Henry & Associates, Inc. (JKHY)
JKHY offers technology solutions and payment processing services primarily for financial services organizations in the United States. Core, Payments, Complementary, Corporate, and Other are the four operational segments of JKHY. It also offers information and transaction processing solutions under the Jack Henry Banking brand and core data processing solutions under the Symitar brand. JKHY is headquartered in Monett, Miss.
Last month, JKHY announced a next-generation, cloud-native technology strategy that will enable community and regional financial institutions to innovate faster, differentiate strategically, and compete successfully while serving the changing needs of their account holders. This strategy focuses on the company's ongoing development of a single, modern, open-banking platform that enables easy access to a broad ecosystem of Jack Henry solutions and high-grade, third-party fintech.
Also last month, JKHY announced that Planters First Bank launched Jack Henry's capabilities to innovate and deliver competitive services that differentiate them from megabanks and big tech and support its vision to be the best community bank for Middle Georgia. Planters First Bank improved its productivity and efficiencies without adding resources by introducing Jack Henry's capabilities to its customers.
During the second quarter, ending Dec. 31, 2021, JKHY's non-GAAP adjusted revenue increased 11.1% year-over-year to $466.90 million. Its adjusted non-GAAP operating income grew 13% from its year-ago value to $101.33 million, while its net income increased 33% from its prior period to $95.67 million. The company's EPS rose 38.3% year-over-year to $1.30.
JKHY is expected to generate $475.52 million in revenue, representing year-over-year growth of 9.6%, in the third quarter (ended March 2022). The $1.06 consensus EPS estimate for the third quarter indicates an 11.8% improvement year-over-year. In addition, the company has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 18.1% in price over the past year and 11.9% over the past three months.
It is no surprise that JKHY has an overall B rating, which equates to Buy in our POWR Ratings system. JKHY has a B grade for Quality and Growth. Within the Financial Services (Enterprise) industry, it is ranked #13 of 112 stocks.
Click here to see the additional POWR Ratings for JKHY (Stability, Value, Sentiment, and Momentum).
Teradata Corporation (TDC)
TDC in San Diego, Calif., provides a connected multi-cloud data platform for enterprise analytics through its subsidiaries. It also provides Teradata Vantage, a data platform that permits companies to leverage their data across an enterprise and connects various data sources to drive ecosystem simplification and support customers on their journey to the cloud through an integrated migration.
In January, TDC announced its creation of a new global customer services organization designed to drive optimal customer experiences, maximize customer value, and achieve greater synergies to increase growth. With the help of this new organization, TDC should be able to combine its current customer support and services organization with its customer success function combining all activities across customer services and support, consulting, and managed services, as well as customer education.
TDC's total revenue amounted to $475.00 million for the fourth quarter ending Dec. 31, 2021. The non-GAAP operating income increased 34.3% from its year-ago value to $90 million, while its non-GAAP net income grew 52.4% from its prior period quarter to $64 million. Its non-GAAP EPS increased 50% year-over-year to $0.57.
Analysts expect TDC's revenue to increase 0.5% year-over-year to $493.34 million in the first quarter, ending March 31, 2022. The company's EPS is expected to grow 19.6% year-over-year to $2.28 for its fiscal year 2023. Also, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has surged 4.8% in price year-to-date and 3.2% over the past three months.
TDC's strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Value and Quality. Within the Technology - Services industry, it is ranked #6.
Beyond what we have stated above, we have also given TDC grades for Growth, Momentum Stability, and Sentiment. Get all the TDC ratings here.
IBM shares were trading at $126.05 per share on Wednesday afternoon, up $0.41 (+0.33%). Year-to-date, IBM has declined -4.56%, versus a -8.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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