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3 IT Services Stocks to Buy Right Now From a Prospering Industry
The Zacks Computers – IT Services industry participants are suffering from challenging macroeconomic conditions that are elongating the sales cycle. The adoption of consultation and transaction processing solutions has been affected by an uncertain macro environment. However, industry participants like Jack Henry & Associates JKHY, Science Applications International SAIC and DXC Technology DXC have been benefiting from ongoing digitization efforts globally. Robust spending on cloud, Internet of Things (IoT), cyber security, data and analytics, artificial intelligence (AI) and automation is driving industry-wide growth. Solid demand for advanced IT-service infrastructure solutions for hybrid working and digital healthcare has been benefiting the prospects of industry participants. Improving IT spending trends also bodes well for these players.
Industry Description
The Zacks Computers – IT Services industry comprises companies that provide consultancy, communications software and services, IT management and operations, cloud-based web development platform, customer relationship management, professional information solutions, real estate information and analysis, and outsourcing services. Industry participants cater to a wide array of end markets, including manufacturing, telecommunications, banking, insurance, healthcare, government agencies and public sector institutions. They focus on the cyber-security business, the cloud computing market, generative AI, IoT and automation to bolster prospects. Offerings from industry participants help improve engagement with customers, launch products and support new business models, with enterprises going for digital transformation.
What's Shaping the Future of the Computers - IT Services Industry
Digitization Wave is a Tailwind: Most industry participants are modernizing their traditional legacy-oriented business processes to keep pace with evolving IT services. The aim is to integrate the coordination of emerging technologies, including cloud, IoT, AI and analytics. Increasing Internet penetration in emerging markets, particularly across the Asia Pacific, is another tailwind.
Hybrid Work Environment to Boost Prospects: The industry’s growth is expected to accelerate in the days ahead due to an increasing number of hybrid workers. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures, which will enable them to provide flexible and easily adaptable hybrid solutions.
Improving IT Spending to Aid Prospects: Improving IT spending trends bode well for industry participants. Gartner projects IT spending to increase 9.8% over 2024 to $5.62 trillion in 2025. Spending on IT services is expected to see a 9% improvement, much better than the 5.6% growth for 2024.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Computers - IT Services is housed within the broader Zacks Computer And Technology Sector. It currently carries a Zacks Industry Rank #92, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bullish near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Given the industry’s bullish prospects, there are several stocks worth buying. But before we present the 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 Computers - IT Services Industry has underperformed the S&P 500 sector and the broader Zacks Computer and Technology sector in the past year.
The industry has declined 13.8% over this period compared with the S&P 500’s fall of 2.3% and the broader sector’s drop of 7.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month Price/Earnings, which is a commonly used multiple for valuing IT Services companies, the industry is currently trading at 25.96X, higher than the S&P 500’s 18.56X and the sector’s 20.58X.
Over the past five years, the industry has traded as high as 41.15X and as low as 25.34X, with the median being 32.17X, as the charts below show.
Price/Earnings (F12M)
3 IT Services Stocks to Buy Right Now
Jack Henry & Associates: This Zacks Rank #2 (Buy) company is benefiting from growing services and support and processing revenues. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The rise in data processing and hosting fees is contributing well to Jack Henry & Associates’ top-line growth. Strength in JKHY’s card processing solutions, owing to expanding transaction volumes, is a plus. Growing payment processing and digital revenues are major positives. Strong momentum across the Core, Payments, Complementary and Corporate segments is positively impacting Jack Henry & Associates’ top-line growth.
The Zacks Consensus Estimate for JKHY’s fiscal 2025 earnings has remained unchanged at $5.85 per share over the past 30 days. Jack Henry & Associates’ shares have declined 6.7% year to date.
Price and Consensus: JKHY
Science Applications: This Zacks Rank #2 company is benefiting from the higher demand for its technology solutions, driven by the ongoing digital transformation wave across the defense, space, intelligence and civilian markets.
The acquisition of Koverse has further expanded the Science Applications AI and machine learning-enabled software portfolio. Its cost-efficiency initiatives are likely to drive margins over the long term.
The consensus mark for SAIC’s fiscal 2026 earnings has increased 1.5% to $9.19 per share over the past 30 days. Science Applications shares have declined 2.4% year to date.
Price and Consensus: SAIC
DXC Technology: This Zacks Rank #2 company’s shares have plunged 29.4% year to date. DXC’s near-term growth prospects are likely to be hurt by softening consumer spending as enterprises are pushing back their investments on big and expensive technology products amid macroeconomic uncertainties.
Nevertheless, the company’s strength in the digital business and a rich partner base are helping it expand in the cloud computing space. Acquisitions are aiding DXC in augmenting revenues amid intensifying competition in the cloud computing and cyber security spaces. Digital transformation, a focus on customer engagement and product development programs are key catalysts.
The Zacks Consensus Estimate for DXC’s fiscal 2026 earnings is pegged at $3.31 per share, unchanged over the past 30 days.
Price and Consensus: DXC
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