Surging inflation, the potential for aggressive interest rate increases, and continuing geopolitical strife in Europe have prompted a massive sell-off in the tech sector. In addition, the rapid digitization of businesses is expected to drive the information technology services industry’s growth. Therefore, we think fundamentally sound information technology stocks Cognizant Technology (CTSH), CGI Inc. (GIB), and Jack Henry (JKHY) could be solid bets now. Read on.
The information technology services market has been achieving enormous growth due to the growing adoption of cloud computing services, AI, business automation, and data analytics in almost every business. In addition, hybrid working trends and a growing focus on metaverse should help the industry maintain its momentum.
While the past couple of months have been challenging for the tech industry due to the Fed’s hawkish stance in its effort to battle inflationary pressure, increasing digitization and tech dependency should aid the IT services industry’s rebound. The global information technology market is expected to reach $9,325.69 billion in 2022, growing at an 11.2% CAGR .
Given this backdrop, we think it could be prudent to bet on fundamentally sound IT services stocks Cognizant Technology Solutions Corporation (CTSH), CGI Inc. (GIB), and Jack Henry & Associates, Inc. (JKHY).
Cognizant Technology Solutions Corporation (CTSH)
CTSH in Teaneck, NJ, is a professional services company that provides consulting, technology, and outsourcing services internationally. The company 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.
This month, CTSH announced its collaboration with Microsoft 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 a 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.
During 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 million, while the net income increased 82.3% from its prior period to $576 million. The company’s EPS has risen 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 21.4% over the past year and 33.9% over the past nine months.
CTSH’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 assesses stocks by 118 distinct factors, each with its own weighting.
The stock also has a B grade for Quality. Within the A-rated Outsourcing – Tech Services industry, it is ranked #4 of 11 stocks.
To see additional POWR Ratings for Growth, Sentiment, Stability, Value, and Momentum for CTSH, click here.
CGI Inc. (GIB)
Headquartered in Montreal, Canada, GIB provides information technology (IT) and business process services. Its participation in IT and business outsourcing management, systems integration and consulting software solutions selling activities, and other related activities.
Recently, GIB announced its agreement to acquire shares of Umanis, a digital company that specializes in data, digital, and business solutions, through its subsidiary CGI France SAS (“CGI France”). Under the agreement, CGI France has the exclusive right to acquire all the shares held by MURA and Olivier Pouligny, which represent approximately 70.6% of the share capital of Umanis, for €17.15 per share.
In the first quarter, ended Dec. 31, 2021, GIB’s revenue increased 2.4% year-over-year to CAD3.09 billion ($2.46 billion). Its net earnings grew 7% from the year-ago value to CAD367.45 million ($291.87 million), while its adjusted EBIT improved 5.2% year-over-year to CAD521.50 million over the period ($414.23 million). Its EPS increased 12.9% from its year-ago value to $1.49.
The consensus EPS estimate of $1.19 for the second quarter, ending March 31, 2022, represents an 8.4% improvement year-over-year. Analysts expect GIB’s revenue to increase 0.4% year-over-year to $2.51 billion in the second quarter of its fiscal year 2022. Furthermore, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in all the trailing four quarters.
GIB’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 an A grade for Stability and a B for Sentiment. Within the Outsourcing – Tech Services industry, it is ranked #5.
In total, we rate GIB on eight diverse levels. Beyond what we have stated above, we have also given GIB grades for Momentum, Growth, Quality, and Value. Get all the GIB ratings here.
Jack Henry & Associates, Inc. (JKHY)
JKHY in Monett, Miss., offers technology solutions and payment processing services primarily for financial services organizations in the United States. The four operating segments of JKHY are Core; Payments; Complementary; and Corporate and Other. It also offers information and transaction processing solutions under the Jack Henry Banking brand and core data processing solutions under the Symitar brand.
Last month, JKHY announced a next-generation, cloud-native technology strategy that should enable community and regional financial institutions to innovate faster and compete, 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 it from megabanks and big tech and support its vision to be the best community bank for Middle Georgia. Planters First Bank improved productivity and efficiency significantly without adding resources by introducing Jack Henry’s capabilities to their customers.
In the second quarter, ending Dec. 31, 2021, JKHY’s non-GAAP revenue increased 11.1% year-over-year to $466.90 million. Its non-GAAP operating income It 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.
Analysts expect JKHY’s revenue to increase 9.6% year-over-year to $475.52 million for 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; it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 25.9% in price over the past year and 13.3% over the past nine 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).
CTSH shares were trading at $91.05 per share on Wednesday afternoon, down $2.07 (-2.22%). Year-to-date, CTSH has gained 2.94%, versus a -6.15% 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.