Despite prevailing market uncertainties, the tech industry is constantly evolving and pushing boundaries, driving innovation across various sectors. Moreover, as businesses and industries recognize the immense value Artificial Intelligence (AI) can bring, the demand for AI technologies, expertise, and solutions continues to surge.
Given the backdrop, fundamentally sound tech stocks, Cognizant Technology Solutions Corporation (CTSH), Nomura Research Institute, Ltd. (NRILY), and The Hackett Group, Inc. (HCKT), could be solid portfolio additions. But before jumping into the fundamentals of the featured stocks, let us look at how the tech industry has been faring so far.
While the tech sector seemed to be struggling initially post the pandemic, it made a solid comeback fueled by staggering demand for AI across various sectors. The sector's robust performance is evident from the tech-heavy Nasdaq Composite index’s 30.2% year-to-date gain.
Moreover, the global AI market reached a value of $136.55 billion in 2022 and is expected to grow significantly at a 37.3% CAGR from 2023 to 2030.
In addition, IT outsourcing is experiencing a surge driven by the rapid pace of digitalization, the widespread adoption of enterprise applications, and the growing popularity of remote work arrangements.
The revenue in the IT outsourcing segment is expected to achieve a milestone of approximately $430.50 billion by 2023, exhibiting a CAGR of 8.1% from 2023 to 2027, leading to a market volume of around $587.30 billion by 2027.
Considering all the above factors, the long-term prospects of the tech sector seem to be positive, thanks to the advancements in AI and persistent demand for innovative products and services. With that being said, let us now evaluate the fundamentals of the aforementioned stocks in detail:
Cognizant Technology Solutions Corporation (CTSH)
CTSH is a renowned professional services company that provides consulting, technology, and outsourcing services worldwide. It operates through four segments: Financial Services; Health Sciences; Products and Resources; and Communications, Media, and Technology.
On June 21, CTSH announced a partnership with Accuray Incorporated (ARAY), a global leader in high-tech and targeted cancer treatment, to assist in the implementation of SAP S/4HANA, aiming to enhance data analysis capabilities and improve operational efficiency in its radiation therapy business.
By leveraging CTSH’s services, ARAY aims to strengthen its infrastructure by deploying SAP to deliver enhanced patient care. In addition, it reflects CTSH’s strong demand for its offerings across various sectors.
On May 9, CTSH and Google Cloud announced an extended partnership to expedite the integration of AI into businesses worldwide. This partnership will assist clients in initiating, migrating, and modernizing their AI initiatives, catering to their needs and current progress. In addition, it enables the company to scale its AI capabilities globally.
For the fiscal first quarter (ended March 31, 2023), CTSH’s revenues amounted to $4.81 billion, while its income from operations stood at $702 million. The company’s net income and adjusted EPS increased 3% and 2.8% from the prior-year quarter to $580 million and $1.11, respectively.
During the same period, its cash and cash equivalents amounted to $2.46 billion, up 12.2% compared to $2.19 billion as of December 31, 2022.
Street expects CTSH’s revenue for the second quarter (ending June 30, 2023) to be $4.84 billion. Its EPS for the current quarter is expected to be $0.99. Moreover, EPS is expected to improve by 5.4% per annum over the next five years. Additionally, it surpassed the EPS estimates in three of the trailing four quarters, which is promising.
CTSH’s shares have gained 12.9% over the past six months to close the last trading session at $62.60.
CTSH’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Value. In the nine-stock A-rated Outsourcing - Tech Services industry, it is ranked #2. To see additional ratings of CTSH for Growth, Momentum, Stability, and Sentiment, click here.
Nomura Research Institute, Ltd. (NRILY)
Headquartered in Tokyo, Japan, NRILY provides research, business consulting, and systems services. The company operates in four segments: Consulting; Financial IT Solutions; Industrial IT Solutions; and IT Infrastructure Services.
On June 1, NRILY successfully developed a carbon tracing system called NRI-CTS. This system is designed to accurately calculate carbon footprints and track greenhouse gas emissions adhering to the technical specifications outlined in the Pathfinder Network ver1 and ver2.
The NRI-CTS prototype has completed the Connectathon, an interconnectivity test conducted since April 17, 2023, based on these technical specifications. NRILY’s achievement signifies that it is among the pioneering companies worldwide to develop a solution compliant with the Pathfinder Network standards.
On March 23, NRILY announced the launch of the latest version of its system operation management solution, named ‘Senju Family 2023.’ To address the growing threat of cyberattacks, the new version introduces a configuration management tool called "Senju Configuration Manager (Senju/CM)."
This tool enables the implementation of reliable measures to address vulnerabilities in managed systems.
NRILY’s revenue increased 13.2% year-over-year to ¥692.17 billion ($4.86 billion) for the fiscal year (ended March 31, 2023). Its operating profit rose 5.3% from the year-ago value to ¥111.83 billion ($785.58 million).
The company’s profit before tax and EPS amounted to ¥108.49 million ($762.12 million) and ¥128.92, representing increases of 3.7% and 6.9% from the prior-year period. Also, its gross profit increased 11% from the year-ago value to ¥239.83 billion ($1.69 billion).
Analysts expect NRILY’s revenue for the fiscal 2024 second quarter (ending September 30, 2023) to increase 7.5% year-over-year to $1.26 billion. Over the past three months, the stock has gained 26.5% to close the last trading session at $28.82.
NRILY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Stability. Within the same A-rated industry, it is ranked #3. Click here to see NRILY’s ratings for Growth, Value, Momentum, Sentiment, and Quality.
The Hackett Group, Inc. (HCKT)
HCKT operates as a strategic advisory and technology consulting firm primarily in the United States, Europe, and internationally. The company operates through three segments: Global Strategy & Business Transformation; Oracle Solutions; and SAP Solutions.
On May 2, Answerthink, an HCKT division, partnered with Nagarro to sell their ComplianceNow suite to American companies that utilize SAP software. ComplianceNow, a product line within Nagarro, consists of various tools designed to enhance and streamline SAP compliance procedures.
The primary goals of this collaboration are to drive innovation, simplify processes, and provide customers with SAP-certified products that deliver cost-effective solutions.
On April 13, HCKT announced the launch of a new research project under its Market Intelligence Service, which aims to evaluate and rank providers of finance and accounting outsourcing providers.
The research will encompass various aspects of finance operations and analysis, including purchase-to-pay, customer-to-cash, general accounting, consolidation and regulatory reporting, control, risk management, and financial planning and analysis capabilities.
This project is expected to provide organizations with valuable insights and guidance when selecting a finance and accounting outsourcing provider.
HCKT’s total revenue amounted to $71.23 million for the first quarter (ended March 31, 2023), while its total costs and operating expenses declined 3.7% from the prior-year quarter to $59.98 million.
During the same period, the company’s adjusted net income came in at $9.96 million and 0.37 per share. Also, its total current liabilities amounted to $46.26 million, declining 22.4% versus $59.60 million as of December 30, 2022.
The consensus EPS estimate of $0.40 for the third quarter (ending September 30, 2023) represents an 8.1% improvement year-over-year. The consensus revenue estimate of $75.18 million for the next quarter indicates a 4.4% increase from the same period last year.
Moreover, the company has an excellent earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 24.1% over the past three months to close the last trading session at $21.76.
It’s no surprise that HCKT has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Stability and Quality. Out of nine stocks in the same industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have HCKT’s ratings for Growth, Value, Momentum, and Sentiment. Get all HCKT ratings here.
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CTSH shares were trading at $61.93 per share on Friday afternoon, down $0.67 (-1.07%). Year-to-date, CTSH has gained 9.26%, versus a 14.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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