The Zacks Computer – Services industry is benefiting from robust demand environment for multi cloud-enabled software solutions for remote working, including online education portals, cloud-gaming and other platforms. Also, increasing adoption of digital transformative techniques in healthcare and financial services remains the silver lining for these industry participants.

CGI Group, Inc. (GIB), ManTech International (MANT), and WidePoint Corporation (WYY) are well positioned to benefit from the above-mentioned positives. Growing adoption of cyber security solutions, stringent regulatory requirements, digital healthcare and the need for business automation solutions should continue to drive the industry’s growth.

Industry Description

The Zacks Computer – Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include national security solutions, business support solutions, and systems engineering as well as software application development solutions.

The industry participants cater to varied end markets and customers including intelligence, defense, U.S. government agencies, communications, banking, financial services, insurance, healthcare, as well as media and entertainment.

What’s Shaping the Future of the Computers – Services Industry

Remote Work & Online Learning Trends Boost Prospects: The industry’s growth is expected to accelerate in the days ahead on increasing number of remote workers in the wake of coronavirus-induced work-from-home wave. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures that will enable them to provide flexible and easily adoptable hybrid solutions. Notably, coronavirus-triggered demand for remote working has led to increased demand for cloud and cost-efficient business support solutions, as well as other digital monetization solutions, which bode well for the industry.

Growing Cyber Attacks a Tailwind: Increasing number of cyber attacks and related security risks are expected to keep the industry’s momentum alive. Government agencies are ideal targets for cyber attacks, as they are entrusted with sensitive information. Therefore, the growing need for cyber security solutions and services in critical areas like defense, intelligence and civilian agencies of the U.S. government bodes well for the industry players.

Regulatory Compliance Drives Demand: The companies in this industry should benefit from increasingly complex network systems, and sensitive information environments in which governments as well as businesses operate. The industry participants are keeping pace with global regulatory and business practice requirements, thereby helping customers incorporate the best practices while complying with governmental and industry norms.

Zacks Industry Rank Indicates Solid Prospects

The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #107, which places it in the top 42% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Lags Sector and S&P 500

The Zacks Computer – Services industry has underperformed both the Zacks S&P 500 composite, and broader Zacks Computer and Technology sector in the past year.

The industry has declined 1.9% over this period against the S&P 500 and broader sector’s rally of 16.2% and 38.2%, respectively.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing computer services stocks, the industry is currently trading at 23.2X versus the S&P 500’s 22.29X and sector’s 26.6X.

Over the past five years, the industry has traded as high as 24.83X, as low as 13.82X and at a median of 21.07X, as the charts below show.

Price-to-Earnings (P/E) Ratio (F1)

Price-to-Earnings (P/E) Ratio (F1)

3 Computer Services Stocks to Keep a Close Eye on

CGI Group, Inc.: The company is benefiting from positive trends in digital transformation in utility, healthcare and financial services. These trends are bolstering the adoption of its IT services that are enhanced with new business consulting capabilities.

Further, this Zacks Rank #2 (Buy) company is well positioned to benefit from an uptick in new managed services bookings, government contracts and strategic partnerships. Notably, CGI Group has declined 9.7% in the past year.

The Zacks Consensus Estimate for fiscal 2020 earnings has been revised 0.8% upward to $3.63 per share over the past 60 days.

Price and Consensus: GIB

ManTech International Corporation: It is a provider of IT and technical services solutions to the U.S. federal government. The company is well poised to capitalize on accelerating need for cyber services among U.S. embassies all over the world, new contract wins, strong backlog and extension of the existing contracts. Further, merger and acquisition activity has been supplementing its growth over the past few years.

Shares of ManTech International have gained 2.9% in the past year. This Zacks Rank #2 company is likely to gain from improving government spending on defence. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, the Zacks Consensus Estimate for 2020 earnings has been upwardly revised by 0.6% over the past 60 days to $3.18 per share.

Price and Consensus: MANT

WidePoint Corporation: It is a provider of products and services to the government sector and commercial markets. The company is benefiting from federal contract wins and contract extensions. Also, increased work on the U.S. Census 2020 as well as expansions with other federal government customers is driving the growth of the company.

Further, this Zacks Rank #2 company is benefiting from the strategic vendor agreement with SYNNEX Corporation. The deal will potentially expand channels for reselling credentials.

Notably, WidePoint Corporation has lost 35.8% over a year. The Zacks Consensus Estimate for 2020 earnings has been revised 100% upward to 2 cents per share over the past 60 days.

Price and Consensus: WYY

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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