With technological advancements and widespread digitization across industries, the outsourcing tech services industry is well-positioned for growth. The industry’s long-term prospects look promising, driven by global technology trends and the ongoing wave of cloud migrations.
Amid this backdrop, it could be wise to add fundamentally strong outsourcing tech stocks, CGI Inc. (GIB), Accenture plc (ACN), and Cognizant Technology Solutions Corporation (CTSH), to one’s portfolio.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the outsourcing tech industry’s prospects.
Organizations globally use outsourcing for project management, cost reduction, and increased productivity. The rising popularity of cloud services is fueling the demand for flexible solutions, benefiting the outsourcing industry.
IT outsourcing has evolved beyond cost-cutting, thanks to cloud migrations, service choices, and the high demand for cybersecurity and automation. This is supported by organizational goals, including business growth and enhancing customer experience. The global IT Services market is projected to grow at a CAGR of 11%, reaching revenues of $17.74 trillion by 2028.
Additionally, many companies now opt for cloud-hosted applications in their daily operations, driving the demand for cloud computing services. The IT outsourcing market is expected to grow significantly, from $585.60 billion in 2023 to $764.63 billion by 2028, growing at a 5.5% CAGR.
Considering these conducive trends, let’s analyze the fundamentals of the three Outsourcing - Tech Services industry picks, beginning with the third choice.
Stock #3: CGI Inc. (GIB)
Headquartered in Montreal, Canada, GIB and its subsidiaries provide information technology (IT) and business process services. Their services include business and strategic IT consulting, systems integration, and software solutions.
On November 27, 2023, GIB joined the Microsoft Intelligent Security Association (MISA), a network of independent software vendors and managed security service providers integrated with Microsoft's security technology. This partnership gives GIB access to Microsoft's security products, adding value and offering thorough security solutions to clients.
On October 11, 2023, GIB announced the acquisition of Momentum Consulting Corp., enhancing its presence in Miami and reinforcing its position in the U.S. metropolitan market.
GIB’s President of U.S. Commercial and State Government Operations, Tim Hurlebaus, said, “The combined strength of Momentum Consulting Corp. and CGI creates additional value for clients through deep industry and technology expertise, a commitment to delivering ROI-led digitization to address business and IT objectives—and with a priority focus on client satisfaction.”
CGI's VP and Chief Security Officer, Raymond Daoud, anticipates that partnering with the MISA will empower GIB to offer clients a more thorough and holistic security approach. This includes cutting-edge research, enriched security solutions, and advanced integration capabilities, ultimately supporting clients' digital transformation journey.
In terms of the trailing-12-month EBITDA margin, GIB’s 17.53% is 86.2% higher than the 9.42% industry average. Likewise, its 11.41% trailing-12-month net income margin is 386.5% higher than the 2.35% industry average. Furthermore, the stock’s 20.94% trailing-12-month Return on Common Equity is considerably higher than the 1.13% industry average.
GIB’s revenue for the fourth quarter ended September 30, 2023, rose 8% year-over-year to CAD$3.51 billion ($2.61 billion). Its adjusted EBIT increased 9.8% year-over-year to CAD$573 million ($426.17 million).
The company’s net earnings, excluding specific items, came in at CAD$421.20 million ($313.27 million), representing an increase of 12.9% year-over-year. Additionally, its EPS, excluding specific items, grew 14.7% year-over-year to CAD$1.79.
Street expects GIB’s EPS and revenues for the quarter ending December 31, 2023, to increase 5.6% and 0.3% year-over-year to $1.32 and $2.60 billion, respectively. The stock has gained 23.3% year-to-date to close the last trading session at $106.23.
GIB’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #5 out of 9 stocks in the A-rated Outsourcing - Tech Services industry. It has an A grade for Stability and a B for Sentiment. Click here to see GIB’s Growth, Value, Momentum, and Quality ratings.
Stock #2: Accenture plc (ACN)
Based in Dublin, Ireland, ACN is a professional services company that provides strategy and consulting, industry X, song, and technology and operation services. The company offers various services, including application services, intelligent automation, application management, software engineering, strategy and consulting, data and analytics, metaverse, and sustainability services.
On December 12, 2023, ACN announced its plan to acquire Vocatus, a management consultancy specializing in behavioral economics modeling for pricing strategies in B2B and B2C. This move boosts ACN’s services in Europe, offering advanced modeling for pricing, sales optimization, differentiation, and customer communication using behavioral economics effects.
On December 11, 2023, ACN signed a strategic agreement with the Commercial Bank of Dubai (CBD) to lead its technology transformation program. This partnership involves establishing a development center of excellence (COE) to optimize CBD’s IT platforms, integrating cutting-edge technologies, and utilizing hyper-automation and generative AI solutions for an improved customer experience.
In terms of the trailing-12-month EBIT margin, ACN’s 15.80% is 223.7% higher than the 4.88% industry average. Likewise, its 10.72% trailing-12-month net income margin is 356.9% higher than the 2.35% industry average. Additionally, its 13.41% trailing-12-month Return on Total Assets is significantly higher than the 0.31% industry average.
For the fourth quarter that ended August 31, 2023, ACN’s revenues increased 3.6% year-over-year to $15.99 billion. The company’s adjusted operating income rose 5.2% over the prior-year quarter to $2.38 billion. For the same period, its adjusted net income came in at $1.76 billion, and its adjusted EPS came in at $2.71, representing an increase of 4.2% year-over-year.
For the quarter (ended November 30, 2023)), ACN’s EPS and revenue are expected to increase 1.6% and 2.9% year-over-year to $ 3.13 billion and $16.21 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 35.8% to close the last trading session at $342.73.
ACN’s 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 an A grade for Quality and a B for Stability and Sentiment. It is ranked #3 in the same industry. To see ACN’s Growth, Value, and Momentum ratings, click here.
Stock #1: Cognizant Technology Solutions Corporation (CTSH)
CTSH is a professional services company that provides consulting technology and outsourcing services in North America, Europe, and internationally. It operates through four segments: Financial Services, Health Sciences, Products and Resources, and Communications, Media, and Technology.
On December 13, 2023, CTSH revealed plans to acquire Thirdera, an Elite ServiceNow Partner, to bolster cross-industry digital transformation for a targeted $1 billion combined business. The goal is to establish one of the world's largest and most qualified ServiceNow partnerships, including 940 employees to CTSH's ServiceNow Business Group and global expansion.
CTSH’s CEO, Ravi Kumar S, said, "I believe the combination of Cognizant's deep industry, AI, and platform expertise paired with Thirdera's leading-edge offerings in enterprise transformation will position Cognizant at the forefront of thought leadership and innovation in the ServiceNow ecosystem."
On December 4, 2023, CTSH announced its partnership with The University of Melbourne to introduce the Tealium Customer Data Platform (CDP). This initiative seeks to boost interaction with students and alumni through personalized experiences, using data to deliver content tailored to their interests and information.
CTSH’s Director at Leading Marketing Modernisation, Kristen Anderson, said, "We are excited to be collaborating again with one of Australia's preeminent universities. And, through the implementation of Tealium CDP, we look forward to helping UoM improve engagement with students, alumni, and community."
In terms of the trailing-12-month EBITDA margin, CTSH’s 17.68% is 87.8% higher than the 9.42% industry average. Likewise, its 10.75% trailing-12-month net income margin is 358.3% higher than the 2.35% industry average. Additionally, its 13.10% trailing-12-month Return on Total Capital is 386.4 higher than the 2.69% industry average.
CTSH’s revenues for the third quarter ended September 30, 2023, increased 0.8% year-over-year to $4.90 billion. The company’s adjusted income from operations came in at $758 million. In addition, its net income and adjusted EPS were $525 million and $1.16, respectively.
Street expects CTSH’s EPS for the quarter ending December 31, 2023, to increase 2.8% year-over-year to $1.04. Its revenue for the quarter ending June 30, 2024, is expected to increase 0.5% year-over-year to $4.91 billion. It surpassed the Street EPS estimates in three of the trailing four quarters. The stock has gained 30.6% year-to-date to close the last trading session at $74.68.
CTSH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Stability and Quality. Within the Outsourcing - Tech Services industry, it is ranked #2. Click here to access CTSH’s Growth, Value, Momentum, and Sentiment ratings.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
ACN shares were trading at $346.03 per share on Friday morning, up $3.30 (+0.96%). Year-to-date, ACN has gained 31.74%, versus a 24.23% 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.
Top 3 Outsourcing Tech Picks to Boost Portfolios in 2024 StockNews.com
