The tech industry is witnessing robust expansion thanks to increased automation and substantial investments in digital transformation initiatives. Moreover, the increasing adoption of emerging technologies across diverse sectors should support the industry's growth.
Considering these factors, it could be wise to buy fundamentally strong tech stocks Lenovo Group Limited (LNVGY), EchoStar Corporation (SATS), and Xerox Holdings Corporation (XRX).
Before delving deeper into their fundamentals, let’s discuss what’s shaping the tech industry’s prospects.
The buzz around generative AI and the expected rate cuts by the Federal Reserve this year have fueled a rally in the tech-heavy Nasdaq Composite, which has risen 11.7% over the past three months.
There is positive momentum around tech companies as businesses invest to digitally transform their operations to achieve modernization, agility, scalability, a competitive edge, enhanced customer satisfaction, and improved operational efficiency.
According to Gartner, global IT spending is expected to reach $5.07 trillion in 2024, marking an 8% increase from 2023. In addition, the spending on IT services this year is projected to grow 10.4% over the prior year to $1.55 trillion.
The IT services market is projected to reach $1.20 trillion by 2024 and grow at an 8.4% CAGR to reach $1.81 trillion by 2029. This increased spending on tech services will be driven by the growing demand for digital transformation initiatives across sectors to enhance operational efficiency and profitability.
Moreover, given the rise in digitization initiatives, there has been an increase in demand for advanced hardware solutions to meet the complex processing demands and increased workloads. The market for IT hardware is expected to grow at a CAGR of 7.9% to reach $191.03 billion by 2029.
Furthermore, the use of advanced technologies such as artificial intelligence (AI), the Internet of Things (IoT), machine learning, and blockchain across different sectors like automotive, manufacturing, healthcare, etc., are boosting the demand for electronic components as devices become smarter, informative, and interconnected.
The global electronic components market is expected to grow at a CAGR of 6.8% to reach $368.40 billion by 2032. Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 47.7% returns over the past year.
Considering these conducive trends, let’s analyze the fundamentals of the featured technology stocks.
Lenovo Group Limited (LNVGY)
Headquartered in Quarry Bay, Hong Kong, LNVGY is an investment holding company that develops, manufactures, and markets technology products and services. It operates through the segments of Intelligent Devices Group, Infrastructure Solutions Group, and Solutions and Services Group.
On January 12, 2024, LNVGY announced AI-powered end-to-end retail solutions at NRF 2024, aiming to enhance customer experiences and address evolving demands. The company provides a unified platform for AI-ready infrastructure, software, and services, showcasing innovations such as AI-powered spatial intelligence for loss prevention and offering tailored solutions for various retail operations.
In terms of the trailing-12-month Return on Common Equity, LNVGY’s 21.19% is significantly higher than the 1.46% industry average. Likewise, its 2.49% trailing-12-month Return on Total Assets is 419.1% higher than the industry average of 0.48%. Furthermore, the stock’s 1.34x trailing-12-month asset turnover ratio is 116.5% higher than the industry average of 0.62x.
LNVGY’s group revenue for the second quarter that ended September 30, 2023, came in at $14.41 billion. Likewise, the company’s net income attributable to equity holders and earnings per share came in at $249 million and $1.99, respectively. Its gross profit margin rose 0.7 percentage points year-over-year to 17.5%.
For the quarter that ended December 31, 2023, LNVGY’s revenue is expected to increase 1.4% year-over-year to $15.48 billion. Its EPS for the fiscal year ending March 31, 2025, is expected to increase 55.5% year-over-year to $2.39. Over the past year, the stock has gained 63.8% to close the last trading session at $27.04.
LNVGY’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #17 out of 35 stocks in the B-rated Technology - Hardware industry. It has an A grade for Value and a B for Momentum. Click here to see LNVGY’s Growth, Stability, Sentiment, and Quality ratings.
EchoStar Corporation (SATS)
SATS and its subsidiaries provide networking technologies and services worldwide. The company operates in two segments, Hughes and EchoStar Satellite Services (ESS).
On January 2, 2024, SATS announced the successful completion of its merger with DISH Network Corporation on December 31, 2023. The combined company, headquartered in Englewood, Colorado, strengthens its position as a global connectivity leader, integrating DISH Network's satellite technology and 5G network with SATS’ satellite communications solutions.
On December 19, 2023, SATS’ Hughes unveiled new Hughesnet high-speed satellite internet plans, leveraging the capacity of the Hughes JUPITER 3 satellite to offer faster speeds, unlimited data, and low-latency features. The plans aim to enhance rural internet experiences, providing up to 100 Mbps download speeds and expanded capabilities for businesses.
In terms of the trailing-12-month EBITDA margin, SATS’ 29.89% is 53.6% higher than the 19.46% industry average. Likewise, its 1.49% trailing-12-month Return on Total Assets is 17.6% higher than the 1.27% industry average. Additionally, its 57.33% trailing-12-month gross profit margin is 16.7% higher than the industry average of 49.13%.
SATS’ revenue for the third quarter that ended September 30, 2023, came in at $413.07 million. The company’s net income attributable to SATS and EPS stood at $3.24 million and $0.04, respectively. In addition, its total adjusted EBITDA came in at $125.81 million.
Street expects SATS’ revenue for the quarter ending March 31, 2024, to increase 825.9% year-over-year to $4.07 billion. Its EPS for the quarter ending June 30, 2024, is expected to increase 46.2% year-over-year to $0.19. It surpassed the consensus EPS estimates in three of the four trailing quarters. Over the past month, the stock has gained 31.3% to close the last trading session at $16.06.
SATS’ positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Value and Quality. It is ranked #9 out of 42 stocks in the Technology - Electronics industry. To see SATS’ Growth, Momentum, Stability, and Sentiment ratings, click here.
Xerox Holdings Corporation (XRX)
XRX designs, develops, and sells document management systems and solutions in the Americas, Europe, the Middle East, Africa, India, and internationally. It offers workplace solutions, including color and multifunction printers, digital services that leverage workflow automation, personalization and communication software, content management solutions, and digitization services.
In terms of the trailing-12-month EBIT margin, XRX’s 5.76% is 17.1% higher than the 4.92% industry average. Likewise, its 3.56% trailing-12-month Return on Total Capital is 27.3% higher than the 2.80% industry average. Additionally, its 0.65x trailing-12-month asset turnover ratio is 4.5% higher than the industry average of 0.62x.
XRX's revenues for the third quarter ended September 30, 2023, came in at $1.65 billion. The company's adjusted operating income increased 4.6% year-over-year to $68 million. Its adjusted net income and adjusted EPS stood at $77 million, up 133.3% over the prior-year quarter. Additionally, its adjusted EPS rose 142.1% year-over-year to $0.46.
Analysts expect XRX’s revenue for the quarter ending June 30, 2024, to increase 0.5% year-over-year to $1.76 billion. Its EPS for the fiscal year that ended December 31, 2023, is expected to increase 70.8% year-over-year to $1.91. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 11% to close the last trading session at $16.06.
XRX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Momentum and Quality. Within the Technology - Services industry, it is ranked #29 out of 76 stocks. To see XRX’s Growth, Stability, and Sentiment ratings, click here.
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LNVGY shares were trading at $27.04 per share on Monday morning, up $0.11 (+0.40%). Year-to-date, LNVGY has declined -3.32%, versus a 0.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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