The tech industry is growing amid significant advancements, widespread digitization across industries, and increasing cloud migrations. So, quality tech stocks Gartner Inc. (IT), Cognizant Technology Solutions Corp. (CTSH), and Hackett Group Inc. (HCKT) might be solid additions to one’s portfolio for healthy returns.

Many companies are now choosing applications hosted in the cloud for their day-to-day operations. The demand for cloud computing services is expected to drive the demand for IT services.

The information technology market is expected to reach $119.96 trillion in 2027, growing at a CAGR of 7.9%.

Moreover, IT outsourcing has become more than a simple cost-reduction technique with cloud migrations and service options. Therefore, this new form is driven by organizational motivations regarding business growth, customer experience, and competitive disruption.

The United States IT Services market is estimated to reach $306.10 billion by 2028, growing at a CAGR of 7.1%.

According to the most recent Gartner prediction, worldwide IT spending would hit $4.7 trillion in 2023, a 4.3% increase from 2022. Increased investments in cloud computing, artificial intelligence, and digital transformation programs across businesses are primarily driving this expansion.

With these favorable trends in mind, let’s delve into the fundamentals of the three best Outsourcing – Tech Services stocks, beginning with the third choice.

Stock #3: Gartner Inc. (IT)

IT operates as a research and advisory company in the United States, Canada, Europe, the Middle East, Africa, and internationally. It operates through three segments: Research; Conferences; and Consulting.

IT’s trailing-12-month EBIT margin of 20.62% is 349% higher than the 4.59% industry average. Its trailing-12-month net income margin of 16.08% is 690.5% higher than the 2.03% industry average.

For the fiscal second quarter that ended June 30, IT’s revenues came in at $1.50 billion, an increase of 9.2% year-over-year. The company’s net income stood at $198 million. Its adjusted EBITDA came in at $384 million. Additionally, the company’s adjusted EPS stood flat at $2.85.

Analysts expect IT’s revenue for the fiscal third quarter ending September 2023 to increase 4.4% year-over-year to $1.39 billion. Its EPS is expected to be $1.96 for the same quarter. Also, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

IT’s stock has gained 23.5% over the past year to close the last trading session at $341.70.

IT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

IT has a B grade for Quality and Sentiment. It is ranked #5 out of 9 stocks in the A-rated Outsourcing – Tech Services industry.

In addition to the POWR Ratings we’ve stated above, we also have IT’s ratings for Value, Growth, Stability, and Momentum. Get all IT ratings here.

Stock #2: Cognizant Technology Solutions Corp. (CTSH)

CTSH is a professional services company that provides consulting, technology, and outsourcing services in North America, Europe, and internationally. It operates through four segments: Financial Services; Health Sciences; Products and Resources; and Communications, Media, and Technology.

On September 20, 2023, CTSH announced that it had been selected by Intrum, a global credit management services company headquartered in Sweden, to provide end-to-end digital integration and core modernization services for Intrum’s credit management technology platform.

The enhancement will allow Intrum’s contact center employees access to both actionable and data-driven insights to use alongside their human empathy and judgment to better advise debt customers from its pan-European delivery centers to develop innovative solutions and support.

On July 24, CTSH announced an expansion of its relationship with Gilead Sciences (GILD). GILD is a leading biopharmaceutical company advancing innovative medicines to prevent and treat life-threatening diseases.

Under the agreement, CTSH will manage Gilead’s global IT infrastructure, platforms, applications, and advanced analytics and lead initiatives designed to accelerate its digital transformation. The agreement includes renewal and expansion of CTSH services for a total expected value of $800 million over the next five years.

CTSH’s trailing-12-month EBIT margin of 15.19% is 230.7% higher than the 4.59% industry average. Its trailing-12-month net income margin of 11.31% is 456% higher than the 2.03% industry average.

CTSH pays $1.16 annually as dividends. This translates to a yield of 1.71% at the current market price, compared to the 4-year average dividend yield of 1.42%.

During the second quarter that ended June 30, 2023, CTSH’s revenue from Products & Resources increased 3.2% to $1.17 billion, while its revenue from Health Sciences increased 2.3% year-over-year to $1.44 billion. Its adjusted income from operations amounted to $694 million, while its non-GAAP earnings per share came in at $1.10.

Street expects CTSH’s revenue for the fiscal third quarter (ending September 30, 2023) to increase 1% year-over-year to $4.99 billion. Its EPS is expected to be $1.09 for the same quarter. The company has surpassed consensus revenue and EPS estimates in three of its trailing four quarters.

The stock has gained 17.7% year-to-date and 25.7% over the past year to close the last trading session at $67.30.

CTSH has an overall rating of B, which translates to a Buy in our POWR Ratings system.

The stock has a B grade for Quality. It is ranked #4 in the same industry.

Access additional CTSH grades for Growth, Momentum, Stability, Sentiment, and Value here.

Stock #1: Hackett Group Inc. (HCKT)

HCKT operates as a strategic advisory and technology consulting firm primarily in the United States, Europe, and internationally. The company operates through three segments: Global Strategy & Business Transformation; Oracle Solutions; and SAP Solutions.

On August 23, 2023, HCKT announced the availability of its purchase-to-pay (P2P) software solutions market intelligence research. The Hackett Value Matrix analyzes 10 leading P2P solutions providers in terms of their ability to deliver value, breadth of capability, solution maturity, and actionable insight.

HCKT’s trailing-12-month EBITDA margin of 20.47% is 123.7% higher than the 9.15% industry average. Its trailing-12-month net income margin of 12.96% is 537.1% higher than the 2.03% industry average.

In the second quarter (ended June 30, 2023), HCKT’s total revenues increased 7.1% year-over-year to $77.10 million, while its operating income came in at $12.79 million. The company’s net income came in at $8.72 million. Also, its net income per common share stood flat at $0.32.

Analysts expect HCKT’s revenue for the third quarter (ending September 30, 2023) to increase 3.7% year-over-year to $74.68 million. Its EPS is expected to increase 6.3% year-over-year to $0.39 in the same quarter. Moreover, the stock topped the consensus EPS estimates in each of the trailing four quarters, which is promising.

Over the past nine months, the stock has gained 16.4% to close the last trading session at $23.71.

HCKT’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

The stock has a B grade for Sentiment and Quality. Within the same industry, it is ranked #2.

Beyond what is stated above, we’ve also rated HCKT for Stability, Growth, Value, and Momentum. Get all HCKT ratings here.

What To Do Next?

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CTSH shares were unchanged in premarket trading Wednesday. Year-to-date, CTSH has gained 19.24%, versus a 11.72% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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