The remote working environment and rapid digitization of most industries have boosted the information technology (IT) services sector’s performance since the onset of the COVID-19 pandemic. According to the latest report from Information Services Group, the market for IT and business services in the Americas hit a record high in 2021. The Americas ISG Index, which measures commercial outsourcing contracts with an annual contract value (ACV) of $5 million or more, rose 27% year-over-year to a record $41.70 billion in 2021.

This trend is expected to continue this year, driven by the increased adoption of hybrid work structures worldwide and the burgeoning metaverse. The global IT services industry is expected to grow at a 4.3% CAGR over the next six years to $1.36 trillion by 2028.

IT services stocks Cognizant Technology Solutions Corporation (CTSH), CGI Inc. (GIB), and Booz Allen Hamilton Holding Corporation (BAH) are well-positioned to capitalize on the industry’s growth. So, we think these stocks could be solid bets now.

Cognizant Technology Solutions Corporation (CTSH)

CTSH in Teaneck, N.J., provides consulting, business process, and technology-related services internationally. It operates in four segments: Financial Services; Healthcare; Products and Resources; and Communications, Media, and Technology. The IT company also provides outsourcing services to various industries globally.

On January 11, CTSH partnered with industrial intelligence SaaS company Uptake to provide a unified data management system for energy and utility industries. Regarding this, AVP David Cox said, “With Uptake Fusion, Cognizant strengthens the ability of our customers to realize the value of data intelligence sooner and at scale.”

Earlier this month, CTSH partnered with Canadian healthcare technology company Reliq Health Technologies, Inc. to expand its health care and management services to a broader range of clients. This should boost CTSH’s revenues and profit margins in the near term.

On Dec. 7, 2021, CTSH acquired software consultancy and product development company Devbridge. The acquisition should expand CTSH’s software product engineering capabilities, thereby improving its operational efficiency and global delivery footprint.

CTSH’s revenues increased 11.8% year-over-year to $4.74 billion in its fiscal third quarter, ended Sept. 30, 2021. Its operating profit grew 20.9% from its year-ago value to $729 million, while its net income improved 56.3% year-over-year to $544 million. Its EPS increased 60.9% from its year-ago value to $1.03.

A $1.04 consensus EPS estimate for its fiscal 2021 fourth quarter (ended December 2021) represents a 55.5% improvement year-over-year. The $4.78 billion consensus revenue estimate for the about-to-be-reported quarter represents a 14.2% increase from the same period last year. The company has an impressive earnings surprise history; it  surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 26.3% in price to close yesterday’s trading session at $86.19.

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 assess stocks by 118 distinct factors, each with its own weighting.

CTSH has a B grade for Quality and Stability. Within the A-rated Outsourcing – Tech Services industry, it is ranked #4 of 11 stocks. To see additional POWR Ratings (Growth, Sentiment, Momentum, and Value) for CTSH, click here.

CGI Inc. (GIB)

CGI Inc. is a Montréal, Canada-based business consulting and Information technology (IT) company. It provides a range of services, including business outsourcing, business process and consulting, portfolio management, IT management, and system integration. The company offers its services to various businesses in North America, Europe, Australia, and the Asia Pacific.

This month, CGI was awarded a new task order to develop a new and innovative data management environment at the Department of the Interior’s Office of Natural Resources Revenue. This reflects GIB’s leading market reach.

Last December, CGI acquired Australian technology consultancy and systems integrator Unico, subject to regulatory approvals. The merger is expected to enhance CGI’s footprint in Australia.

In its fiscal 2021 fourth quarter, ended Sept. 30, 2021, GIB’s revenues increased 2.8% year-over-year to CAD3.01 billion ($2.40 billion). Its adjusted EBIT increased 7.8% from its year-ago value to CAD493.30 million ($392.86 billion). And the company’s EPS increased 44.8% from its year-ago value to CAD1.39.

Analysts expect GIB’s revenue for its fiscal year 2022 first quarter to come in at $2.46 billion, representing a 4.4% rise year-over-year. The Street expects the company’s EPS for the about-to-be-reported quarter to be $1.13, representing an 8.8% increase year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the four trailing quarters.

Shares of GIB gained 11.6% in price over the past year and 2.1% over the past month.

GIB has an A grade for Stability. It is ranked #7 in the Outsourcing – Tech Services industry. Click here to see other ratings of GIB for Growth, Value, Momentum, Quality, and Sentiment.

Booz Allen Hamilton Holding Corporation (BAH)

BAH is a holding company that provides technology and management consulting, analytics, digital, and cyber solutions to governments and not-for-profit organizations internationally. The McLean, Va.-based concern has a $11.91 billion market capitalization.

On Dec.9, 2021, BAH spun off its commercial artificial intelligence platform Moodzy to a new publicly traded company. This is in line with BAH’s plans to focus on its core business segments and accelerate innovation goals.

Also in December, the company announced the opening of a new office in Honolulu, Hawaii. The office is expected to become an artificial intelligence and innovation center, strengthening BAH’s ability to deliver scalable capabilities. BAH also announced the opening of a new 5G lab in Maryland in December.

BAH’s revenues increased 4.3% year-over-year to $2.10 billion in its fiscal year 2022 second quarter, ended September 30, 2021. Its adjusted EBITDA came in at $270 million, indicating an 18.1% improvement from the same period last year. And its adjusted net income rose 18.6% from the prior-year quarter to $170 million, while its adjusted EPS increased 22.3% from its year-ago value to $1.26.

Analysts expect BAH revenues to improve 13.8% year-over-year to $2.25 billion in its fiscal 2022 fourth quarter (ending March 2022). Its EPS is estimated to increase 7.8% from the same period last year to $0.96 in the current quarter. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the four trailing quarters.

The stock has gained 8.9% in price over the past three months and 3.8% year-to-date.

According to our POWR Ratings, BAH has a B grade for Sentiment. Among the 74 stocks in the Air/Defense Services industry, it is ranked #21. Click here to see the additional POWR Ratings for Growth, Momentum, Value, Stability, and Quality for BAH.

Click here to check out our Software Industry Report for 2021

CTSH shares were unchanged in premarket trading Wednesday. Year-to-date, CTSH has declined -2.85%, versus a -3.89% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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