The Zacks Computer - Services industry participants like CGI Group GIB, CACI International CACI, and WidePoint WYY are riding on the ongoing digital transformation, which is increasing the demand for cloud-enabled software solutions. The growing adoption of digital transformative techniques in healthcare and financial services has been a silver lining for industry participants. The growing need for consulting, research, and cybersecurity solutions, stringent regulations, digital healthcare, and the growing adoption of business automation solutions are likely to continue driving the industry’s prospects. However, industry participants continue to face broader macroeconomic challenges, including higher tariffs that have resulted in an elongated sales cycle, lower conversion rates, and customer delays in making purchase decisions.
Industry Description
The Zacks Computer - Services industry primarily comprises companies that offer cloud and software-based solutions. Their offerings include consulting and research solutions, security solutions, business support solutions and systems engineering, as well as software application development solutions. The industry participants cater to varied end markets and customers, including intelligence, defense, U.S. government agencies, communications, banking, financial services, insurance, healthcare, and media and entertainment. Consultancy companies in the industry are helping clients in their ongoing digital transformation. They provide end-to-end services, including application development, integration and maintenance, technology infrastructure management and business process services.
3 Computer-Services Industry Trends to Watch
Remote & Hybrid Work Trends Boost Prospects: The industry’s growth is expected to accelerate in the days ahead based on an increasing number of remote and hybrid workers. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructures, enabling them to provide flexible and easily adaptable hybrid solutions. The growing remote-working trend has led to increased demand for cloud and cost-efficient business support solutions, as well as other digital monetization solutions, which bode well for the industry.
Growing Cyber Attacks Are Creating a Tailwind: The increasing number of cyberattacks and related security risks are expected to keep the industry’s momentum alive. Government agencies are ideal targets for cyberattacks, as they are entrusted with sensitive information. Therefore, the growing need for cybersecurity solutions and services in critical areas like defense, intelligence and civilian agencies of the U.S. government bodes well for industry players.
Regulatory Compliance Drives Demand: Companies in this industry are likely to benefit from increasingly complex network systems and sensitive information environments in which governments and businesses operate. Industry participants are keeping pace with global regulatory and business practice requirements, thereby helping customers incorporate the best practices while complying with governmental and industry norms.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Computer – Services industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #70, which places it in the top 28% 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 bright 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 bullish industry outlook, there are a number of stocks worth watching currently. But before we present those 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.
Industry Lags Sector and S&P 500
The Zacks Computer – Services industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index over the past year.
The industry has returned 8.7% over this period compared with the S&P 500’s appreciation of 10.3% and the broader sector’s return of 8.9%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month P/E, which is a commonly used multiple for valuing computer stocks, we see that the industry is currently trading at 16.83X compared with the S&P 500’s 20.44X and the sector’s forward 12-month P/E of 23.15X.
Over the last five years, the industry has traded as high as 19.59X and as low as 13.14X, with a median of 16.2X, as the charts below show.
Forward 12-Month Price-to-Earnings (P/E) Ratio
3 Computer-Services Stocks to Buy Right Now
CGI Group: This Zacks Rank #2 (Buy) company is benefiting from strong performance in the government and financial services end markets. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CGI Group’s strong focus on driving monetization and operational efficiency is helping the company win clients in the government end market. An expanding partner base that includes the likes of Snowflake and Databricks is a tailwind along with the merger with Daugherty.
However, continued softness in the manufacturing sector, particularly in Europe, is a headwind for GIB’s prospects.
The Zacks Consensus Estimate for GIB’s fiscal 2026 earnings has increased 1.7% to $6.40 per share over the past 30 days. The stock has declined 2.1% year to date.
Price and Consensus: GIB
CACI International: This Reston, VA-based IT applications and infrastructure provider is benefiting from new business wins and organic expansions. This Zacks Rank #2 company’s disciplined business development actions, consistent operational excellence and high customer satisfaction help it win new deals at regular intervals.
CACI’s sustained focus on its strategy to grow in larger markets and leverage mergers and acquisitions to further increase its market share and create long-term value for its shareholders is praiseworthy.
The Zacks Consensus Estimate for CACI’s fiscal 2025 earnings has increased 0.5% to $24.05 per share over the past 30 days. The stock has returned 11.1% year to date.
Price and Consensus: CACI
WidePoint: This Zacks Rank #2 company is benefiting from contract win as WYY secured $51.2 million in total contract value in 2024 with $45.6 million awarded by federal agencies and $5.6 million from commercial organizations. As of Dec. 31, 2024, WidePoint contract backlog stood at approximately $290 million.
WidePoint achieved FedRAMP authorization status for the Intelligent Technology Management System (ITMS). This means WYY’s ITMS solutions now meet stringent federal cybersecurity standards, thereby expanding contract opportunities. The launch of the M365 Analyzer solution for Microsoft clients is noteworthy.
The Zacks Consensus Estimate for WYY’s 2025 earnings is pegged at 1 cent per share against loss of 12 cents over the past 30 days. The stock has declined 13.5% year to date.
Price and Consensus: WYY
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