Rapid digital transformation, rising adoption of cloud-based services, big data storage, analytics and security, AI, and automation have all helped the information technology (IT) services industry thrive since the onset of the COVID-19 pandemic. Overall IT spending increased 9% in 2021. This year’s expected increase in IT spending and the growing need for cost-efficient consulting, data processing, outsourcing, transaction processing services, and software support should keep driving the IT services industry’s growth. The global IT Services market is expected to grow at a 7.7% CAGR to $1.51 trillion by 2026.

Although tech stocks have been suffering immense volatility owing to investors’ concerns over forthcoming interest rate hikes, demand for IT services should help the industry regain its momentum in the long run. Investors’ interest in this space is evidenced by the Fidelity MSCI Information Technology Index ETF’s (FTEC) 14.6% returns over the past nine months versus the SPDR S&P 500 Trust ETF’s (SPY) 7.2% gains.

Given this backdrop, we believe fundamentally sound IT services providers Accenture plc (ACN), International Business Machines Corporation (IBM), Infosys Limited (INFY), Cognizant Technology Solutions Corporation (CTSH), and Wipro Limited (WIT) may be ideal bets now.

Accenture plc (ACN)

Based in Dublin, Ireland, ACN is a professional services company that provides management and technology consulting services. The company operates through five business group—Communications, Media, and Technology; Financial Services; Health and Public Service; Products; and Resources. It also provides managed security and cyber defense services (MSS).

On Feb.15, 2022, ACN and League, a health-focused platform-as-a-service company, collaborated to combine ACN’s data analytics and systems integration capabilities with League’s healthcare experience platform to deliver improved and personalized digital healthcare experiences. The company is expanding its PC Health platform capabilities through Shoppers Drug Mart, Canada’s leading retail pharmacy chain, which will provide access to a network of health care providers, health and wellness programs, and rewards. This collaboration will allow ACN to help clients drive engagement across the healthcare ecosystem.

For its fiscal 2022 fourth quarter, ended Nov. 30, 2021, ACN’s revenues increased 27.2% year-over-year to $14.97 billion. The company’s operating income came in at $2.43 billion, representing a 28.8% year-over-year improvement. Its net income was $1.79 billion, up 19.4% from the prior-year period. And ACN’s adjusted EPS increased 28.1% year-over-year to $2.78. The company had cash and cash equivalents of $5.64 billion as of Nov. 30, 2021.

Analysts expect ACN’s EPS to improve 20% year-over-year to $9.36 for its fiscal year 2022, ending Aug. 31, 2022. It surpassed the consensus EPS estimates in each of the trailing four quarters. The $53.19 billion consensus revenue estimate for the same fiscal year represents an 18.7% rise from the prior-year period. And the company’s EPS is expected to grow at an 11.4% rate per annum over the next five years.

The company’s total assets have grown at a 17.8% CAGR over the past three years. Its stock has gained 29.8% in price over the past year to close yesterday’s trading session at $333.72.

ACN’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a B grade for Sentiment and Quality. Click here to see the additional ratings for ACN’s Growth, Value, Stability, and Momentum. ACN is ranked #5 of 11 stocks in the A-rated Outsourcing – Tech Services industry.

International Business Machines Corporation (IBM)

IBM in Armonk, N.Y., provides integrated solutions and services worldwide. The company operates through six segments: Cloud & Cognitive Software; Global Business Services; Global Technology Services; Systems; Global Financing; and Other. It offers application, technology consulting and support, process design and operations, cloud, digital workplace, network services, business resiliency, strategy, and design solutions.

On Feb. 15, 2022, IBM acquired Neudesic, a leading U.S. cloud services consultancy that specializes in the Microsoft Azure platform and multicloud. This acquisition will significantly expand IBM’s portfolio of hybrid multicloud services and further advance the company’s hybrid cloud and AI strategy and meet the clients’ growing hybrid cloud needs.

For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, IBM’s total revenue increased 6.5% year-over-year to $16.70 billion. The company’s non-GAAP gross profit came in at $9.68 billion, indicating a 2.9% year-over-year improvement. Its non-GAAP income from continuing operations was $3.04 billion, representing an 80% rise from the prior-year period. IBM’s net income came in at $2.33 billion for the quarter, up 72% from the year-ago period. And its non-GAAP EPS increased 78.2% year-over-year to $3.35. As of Dec. 31, 2021, the company had $6.65 billion in cash and cash equivalents.

Analysts expect the company’s EPS to reach $9.88 for its fiscal year 2022, ending Dec. 31, 2022, representing a 24.6% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $60.74 billion consensus revenue estimate for the same fiscal year indicates a 5.9% year-over-year improvement. The company’s EPS is expected to grow at a 16.5% rate per annum over the next five years.

IBM’s total assets have grown at a 2.3% CAGR over the past three years. The stock has gained 12.6% in price over the past year and ended yesterday’s trading session at $129.18.

IBM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.

It has a B grade for Value and Quality. Click here to see the additional ratings for IBM (Growth, Stability, Momentum, and Sentiment). IBM is ranked #15 of 82 stocks in the Technology – Services industry.

Infosys Limited (INFY)

Headquartered in Bengaluru, India, INFY provides consulting, technology, application development and management, outsourcing, product engineering and management, and next-generation digital services. The company serves financial services, life sciences, healthcare, manufacturing, retail, logistics, communications, telecom OEM, media, energy, and utility industries. 

On Feb. 16, 2022, INFY was named a Foundational Partner to launch Alphabet Inc.’s (GOOGL) Google Cloud Cortex Framework. INFY will take advantage of Google Cloud Cortex Framework to combine Infosys Cobalt and Framework’s strong experience in AI, SAP, data analytics, and Google Cloud ecosystems to help clients accelerate digital transformation and gain faster insights into sales, orders, products, customers, and more. Both companies should receive high demand for cloud-based enterprise transformation services in the coming months.

For its fiscal 2022 third quarter, ended Dec. 31, 2021, INFY’s revenue increased 20.9% year-over-year to $4.25 billion. The company’s gross profit came in at $1.39 billion, up 12.3% from the prior-year period. Its operating profit was $998 million, representing an 11.8% rise from its prior-year value. INFY’s net profit came in at $774 million for the quarter, indicating a 9.8% rise from the prior-year period. And its EPS increased 5.9% year-over-year to $0.18. The company had $2.15 billion in cash and equivalents as of December 31, 2021.

Analysts expect INFY’s EPS to improve 16.4% year-over-year to $0.71 for its fiscal year 2022, ending March 31, 2022. It surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive. The $16.34 billion consensus revenue estimate for the same fiscal year represents a 20.5% rise from the prior-year period. The company’s EPS is expected to grow at a 14.8% rate per annum over the next five years.

INFY’s total assets have increased at a 7.3% CAGR over the past three years. The stock has gained 28.7% in price over the past year to close yesterday’s trading session at $22.84.

INFY’s POWR Ratings reflect its solid prospects. It has an overall B rating, which equates to Buy in our proprietary rating system.

The stock has an A grade for Quality and a B grade for Stability and Sentiment. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for INFY’s Momentum, Growth, and Value here. INFY is ranked #4 in the Outsourcing – Tech Services  industry.

Cognizant Technology Solutions Corporation (CTSH)

CTSH is a professional services company that provides consulting and technology and outsourcing services internationally. The Teaneck, N.J.-based company operates through four segments: Financial Services; Healthcare; Products and Resources; and Communications, Media, and Technology. It serves manufacturers, retailers, travel and hospitality, logistics, energy, and utility industries.

On Feb. 9, 2022, CTSH renewed its three-year contract agreement with Volvo Cars, a subsidiary of Chinese automotive company Zhejiang Geely Holding Group Co., Ltd. (Geely), to harmonize Volvo Cars’ finance and accounting, procurement processes, and logistics services, and implement Intelligent Process Automation (IPA) to drive efficiency and support its digital transformation journey. Furthermore, using best in class Payment On Time (POT), contactless processing of invoices, and ticketing tools, Volvo Cars will also be able to reduce the cost of delivery of business process services and improve overall business outcomes. This should further enhance the companies’ long-term partnership.

For its fiscal 2021 fourth quarter, ended Dec. 31, 2021, CTSH’s revenues increased 14.2% year-over-year to $4.78 billion. The company’s adjusted income from operations came in at $732 million, representing a 41.9% rise from the prior-year period. While its net income increased 82.3% year-over-year to $576 million, its adjusted EPS rose 64.2% to $1.10. As of Dec. 31, 2021, the company had $1.79 billion in cash and cash equivalents.

Analysts expect the company’s EPS to reach $4.56 for its fiscal year 2022, ending Dec. 31, 2022, representing a 10.7% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $20.28 billion consensus revenue estimate for the same fiscal year indicates a 9.6% year-over-year improvement. The company’s EPS is expected to grow at an 11.5% rate per annum over the next five years.

CTSH’s total assets have grown at a 4.1% CAGR over the past three years. The stock has gained 17.5% in price over the past year and ended yesterday’s session at $89.42.

CTSH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has a B grade for Quality. Click here to see the additional ratings for CTSH (Stability, Sentiment, Growth, Value, and Momentum). CTSH is ranked #3 in the Outsourcing – Tech Services industry.

Wipro Limited (WIT)

Based in Bengaluru, India, WIT operates as information technology (IT), consulting, and business process services company worldwide. The company serves government, defense, IT, and IT-enabled services, telecommunications, healthcare, manufacturing, retail, transportation, energy, utilities, education, and financial services sectors, primarily in the Indian market.

On Feb. 16, 2022, WIT was awarded a $150 million five-year strategic engagement to drive transformation for Switzerland-based technology company ABB Ltd.’s (ABB) Information Systems digital workplace services. Leveraging WIT’s superior endpoint security services and LiVE Workspace solution will help ABB deliver increased automation and enhanced user experience through personalized services underpinned by real-time analytics and managed services support.

For its fiscal 2021 third quarter, ended Dec. 31, 2021, WIT’s revenues increased 29.6% year-over-year to $2.73 billion. The company’s gross profit was  $812 million, representing a 15.2% rise from the prior-year period. WIT’s EPS increased 4.8% year-over-year to $0.07. As of Dec. 31, 2021, the company had $1.45 billion in cash and cash equivalents.

Analysts expect the company’s EPS to reach $0.30 for its fiscal year 2022, ending March 31, 2022, representing a 9.2% rise from the prior-year period. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The $10.66 billion consensus revenue estimate for the same fiscal year indicates a 27.7% year-over-year improvement. The company’s EPS is expected to grow at a 9% rate per annum over the next five years.

WIT’s total assets have grown at an 8% CAGR over the past three years. The stock has gained 13.2% in price over the past year and ended yesterday’s trading session at $7.45.

WIT’s strong fundamentals are reflected in its POWR Ratings. The stock has a B grade for Stability. Click here to see the additional WIT ratings (Value, Growth, Quality, Momentum, and Sentiment). WIT is ranked #7 in the Outsourcing – Tech Services industry.

ACN shares were trading at $328.09 per share on Thursday morning, down $5.63 (-1.69%). Year-to-date, ACN has declined -20.65%, versus a -7.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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