Cloud migrations and digitization trends across industries fuel the tech industry’s growth. Given the industry’s steady prospects, investors could consider quality tech stocks Cognizant Technology Solutions Corporation (CTSH), Teradata Corporation (TDC), and The Hackett Group, Inc. (HCKT).
With digital transformation, organizations have become dependent on the success of creative applications and extensions that IT could provide. IT has become a critical competitive edge for most organizations.
Moreover, IT outsourcing has become more than a simple cost-reduction technique with cloud migrations and service options. Therefore, this new form is driven by organizational motivations regarding business growth, customer experience, and competitive disruption.
The United States IT Services market is estimated to reach $306.10 billion by 2028, growing at a CAGR of 7.1%.
In addition, many companies are now choosing applications hosted in the cloud for their day-to-day operations. The demand for cloud computing services is expected to boost the demand for IT services.
The information technology market is expected to reach $119.96 trillion in 2027, growing at a CAGR of 7.9%.
Let’s discuss the stocks mentioned above in detail:
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 July 24, 2023, CTSH announced an expansion of its relationship with Gilead Sciences Inc. (GILD). Under the agreement, CTSH will manage Gilead’s global IT infrastructure, platforms, applications, and advanced analytics, and lead initiatives designed to accelerate its digital transformation.
The agreement includes renewal and expansion of CTSH services for a total expected value of $800 million over the next five years. This collaboration is aimed at enabling GILD to streamline various parts of its business with the goal of faster time to market various medicines for life-threatening diseases, including HIV, viral hepatitis, and cancer.
On July 28, 2023, CTSH and ServiceNow Inc. (NOW) announced a strategic partnership to advance the adoption of AI-driven automation across industries. The expanded alliance is expected to help accelerate the path toward building a $1 billion combined business for CTSH and NOW.
CTSH’s trailing-12-month EBIT margin of 15.19% is 236.5% higher than the 4.51% industry average. Its trailing-12-month net income margin of 11.31% is 457.9% higher than the 2.03% industry average.
CTSH pays $1.16 annually as dividends. This translates to a yield of 1.62% at the current market price, compared to the 4-year average dividend yield of 1.41%.
During the second quarter that ended June 30, 2023, CTSH’s revenue from Products & Resources increased 3.2% to $1.17 billion, while its revenue from Health Sciences increased 2.3% year-over-year to $1.44 billion. Its adjusted income from operations amounted to $694 million, while its non-GAAP earnings per share came in at $1.10.
Street expects CTSH’s revenue for the fiscal third quarter (ending September 30, 2023) to increase marginally year-over-year to $4.90 billion. Its revenue is expected to be $1.10 for the same quarter. The company has surpassed consensus revenue and EPS estimates in three of its trailing four quarters.
The stock has gained 25.2% year-to-date to close the last trading session at $71.61.
CTSH’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade in Quality. It is ranked #2 out of 9 stocks in the A-rated Outsourcing - Tech Services industry.
Beyond what is stated above, we’ve also rated CTSH for Value, Sentiment, Momentum, Growth, and Stability. Get all CTSH ratings here.
Teradata Corporation (TDC)
TDC provides a connected multi-cloud data platform for enterprise analytics. The company offers Teradata Vantage, a data platform that allows companies to leverage their data across an enterprise, as well as connects various sources of data to drive ecosystem simplification and support customers on their journey to the cloud through an integrated migration.
On July 25, 2023, TDC announced the acquisition of Stemma Technologies, a cloud-native data catalog solution well-known for its application in AI and machine learning.
TDC’s analytics value and self-service analytics in AI and ML analytics will be enhanced due to the acquisition. With 20 built-in data interfaces, Stemma’s solution provides high-grade security and automatic data insight, improving TDC’s data fabric and Vantage platform.
TDC’s trailing-12-month EBIT margin of 7.75% is 71.7% higher than the 4.51% industry average. Its trailing-12-month net income margin of 3.21% is 58.4% higher than the 2.03% industry average.
For the fiscal second quarter ended June 30, 2023, TDC’s revenues rose 7.4% year-over-year to $462 million. Its non-GAAP gross profit increased 6.5% year-over-year to $280 million. Its non-GAAP net income rose 40% year-over-year to $49 million. Also, non-GAAP EPS came in at $0.48, representing an increase of 45.5% year-over-year.
TDC’s revenue is expected to increase 2.8% year-over-year to $1.85 billion for the year ending December 2023. Its EPS is expected to grow 20.9% year-over-year to $1.98 for the same year. It has surpassed EPS and revenue estimates in three of four trailing quarters.
Over the past nine months, the stock has gained 35.5% to close the last trading session at $46.27.
TDC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
It has an A grade in Growth and Quality and a B in Value. Within the Technology - Services industry, it is ranked #2 out of 77 stocks.
Click here to see the other ratings of TDC (Momentum, Sentiment, and Stability).
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 August 23, 2023, HCKT announced the availability of its purchase-to-pay (P2P) software solutions market intelligence research. The Hackett Value Matrix analyzes 10 leading P2P solutions providers in terms of their ability to deliver value, breadth of capability, solution maturity and actionable insight.
HCKT’s trailing-12-month EBITDA margin of 20.47% is 123.7% higher than the 9.15% industry average. Its trailing-12-month net income margin of 12.96% is 539.2% higher than the 2.03% industry average.
In the second quarter (ended June 30, 2023), HCKT’s total revenues increased 7.1% year-over-year to $77.10 million, while its operating income came in at $12.79 million. The company’s net income came in at $8.72 million. Also, its net income per common share stood flat at $0.32.
Analysts expect HCKT’s revenue for the third quarter (ending September 30, 2023) to increase 3.7% year-over-year to $74.68 million. Its EPS is expected to increase 6.3% year-over-year to $0.39 in the same quarter. Moreover, the stock topped the consensus EPS estimates in each of the trailing four quarters, which is promising.
HCKT’s shares have gained 26.5% over the past six months and to close the last trading session at $23.57.
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 Sentiment and Quality. Within the Outsourcing - Tech Services industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have HCKT’s ratings for Growth, Value, Stability, and Momentum. Get all HCKT ratings here.
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CTSH shares were trading at $71.82 per share on Friday morning, up $0.21 (+0.29%). Year-to-date, CTSH has gained 27.25%, versus a 18.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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