2 Information Technology Service Stocks to Add to Your Watchlist

NYSE: ACN | Accenture PLC Cl A News, Ratings, and Charts

ACN – The information technology services industry is expected to continue growing as organizations adopt software and cloud-computing to digitize their businesses to improve their operational efficiency. Consequently, we think the shares of leading IT services companies Accenture plc (ACN) and Wipro (WIT) could now be good additions to one’s portfolio.

Because the COVID-19 pandemic forced people to stay at home and accelerated businesses’ digital transformation, information technology services companies have registered immense growth. Because organizations are now prioritizing digitization to ensure that their businesses are efficient and prepared for the next 100-year disruptive event, IT services companies continue to benefit from a surge in demand.

According to a latest forecast by Gartner, Inc., global IT spending is expected to amount to $4.1 trillion in 2021, representing an 8.4% increase from 2020. Furthermore, the ascendance of the hybrid workforce structure is expected to drive the demand for Everything as a Service (XaaS), which should benefit IT services companies significantly. The global IT services market size is expected to grow at an 8% CAGR from 2020-2025. The increased focus on business agility and scalability, and the rising adoption of cloud platforms, should keep attracting investments in this space.

Because demand for the services provided by Accenture plc (ACN) and Wipro Limited (WIT) is expected to continue growing, we believe these companies hold solid growth prospects.

Click here to check out our Software Industry Report for 2021

Accenture plc (ACN)

Headquartered in Dublin, Ireland, ACN is a global professional services company that provides strategy and consulting, interactive, and technology and operations services, along with  outsourcing services. It serves various sectors, which include communications and media companies, insurance industries, the consumer goods industry, industrial, and life science industries, as well as the healthcare and manufacturing industries.

This month, ACN acquired Entropia, one of the fastest-growing international agencies, to expand its unique position in the market for experience-led transformation services. This first-time acquisition in Southeast Asia should help ACN grow in the region by innovating further to meet the growing demands of its clients.

ACN’s revenue grew 8% year-over-year to $12.1 billion in its  fiscal quarter ended February 28, 2021. The company’s operating margin increased by 30 bps year-over-year to 13.7%. Its revenue from communication, media and technology industry groups increased 9% year-over-year to $2.5 billion for this period. It reported an EPS of $2.03 during this quarter, representing a 10% increase from the year-ago value.

Analysts expect ACN’s revenue to increase 17.4% year-over-year to $12.76 billion in the current quarter, ended May 2021. The company’s EPS is expected to increase 17.9% year-over-year to $2.24 for the same period. The stock has gained 36.9% over the past year.

ACN’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. The stock is rated an A for Quality, and a B for Momentum and Stability. Within the A-rated Outsourcing – Tech Services group, it is ranked #4 of 13 stocks.

To see additional POWR Ratings Sentiment, Value and Growth for ACN, Click here.

Wipro Limited (WIT)

Based in Bengaluru, India, WIT is a leading global information technology, consulting and business process services company. It operates in cognitive computing, hyper-automation, robotics, cloud, analytics and emerging technologies to help its clients adapt to the digital world. The company has more than  190,000  employees serving clients across six continents.

This month, WIT partnered with Finastra, the largest pure-play software vendor that serves the  financial services industry, to aid corporate banks across Asia-Pacific to  adapt to digitization. This move  should expand Wipro’s  comprehensive services together  with Finastra’s trade finance and cash-management solutions across banks in the region.

In its  fiscal fourth quarter, ended March 31, 2021, WIT’s gross revenue increased 3.4% year-over-year to ₹162.5 billion ($2.2 billion), while the company’s IT Services operating margin increased 0.6% year-over-year to 19%. It reported ₹29.7 billion ($406.4 million) in net income for the quarter, representing a 27.8% increase  year-over-year. Its EPS rose  31.8% year-over-year to ₹5.39 ($0.07) for the period.

Analysts expect WIT’s EPS to increase 40% to $0.07 year-over-year in the current quarter, ending June 2021. Its revenue is expected to increase 18.6% year-over-year to $9.9 billion in the current year. The stock has gained 139.2% over the past year.

It is no surprise that WIT has an overall B grade, which equates to Buy in our POWR ratings system. It also has a B grade for Quality, Stability and Sentiment. In the Outsourcing – Tech Services industry, it is ranked #6.

In total, we rate WIT on eight different levels. Beyond what we’ve stated above, we have also given WIT grades for Momentum, Value and Growth. Get all the WIT ratings here.

Click here to check out our Software Industry Report for 2021

ACN shares were trading at $280.14 per share on Thursday afternoon, down $1.66 (-0.59%). Year-to-date, ACN has gained 7.95%, versus a 12.55% rise in the benchmark S&P 500 index during the same period.

About the Author: Samiksha Agarwal

Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...

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