Players in the Zacks Computer – Integrated Systems industry are grappling with ongoing Covid-related supply chain bottlenecks. A difficult macroeconomic environment with rising inflation is also a concern. Soaring prices and continued delays in customer acceptance have resulted in a high backlog and clouded the industry’s prospects. Nonetheless, International Business Machines (IBM – free report) zoom info (ZI – free report) Agilysys (AGYS – Free report) and PAR technology (PAR – Free Report) are a few industry participants to watch as they capitalize on the rise of advanced forms of data management, the rapid shift away from traditional silos, increased demand for integration of delivery techniques, and modern application development.
The Zacks Computer – Integrated Systems industry includes companies that provide advanced information technology solutions including computer systems, software, storage systems and microelectronics. These industry players are increasingly investing in data modernization and analytics, cyber defenses, remote working, automation and contactless services, customer and employee experience, and supply chain modernization, accelerating growth in digital transformation services. Some industry participants also offer technological solutions (both products and services) to help organizations connect, interact and transact with customers. Others develop and market information recognition, data entry software, systems and technologies.
4 industry trends for computers – focus on integrated systems
Integrated solutions drive demand: The industry benefits from the increasing demand for integrated solutions for small, medium and large companies as well as increasing investments in IoT, big data, AI and blockchain software technologies. Additionally, business analytics, cloud computing, mobile and security and social enterprise present significant opportunities for a growing number of teleworkers in the wake of the work-from-home wave caused by the coronavirus. Industry players are expected to benefit from the recovery in global IT spending as forecast by Gartner.
Solid adoption of the multi-cloud model: The increasing adoption of the multi-cloud model to achieve better scalability and improved resource utilization is also expanding the scope of industry participants. Cloud and virtual hardware/software technologies are expected to be beneficial to the industry. As growth and investment opportunities continue to slow in developed markets, we believe emerging markets will play a crucial role in the coming days.
Bottlenecks and backlogs in the supply chain: Industry participants are experiencing supply shortages, weak server demand and cognitive applications, as well as delays in customer adoption, which in turn leads to high backlogs, particularly in compute, high performance computing & mass storage class and storage. In addition, FX volatility – largely due to the current macroeconomic scenario and headwinds in emerging markets – does not bode well for the industry.
Semiconductor Chip Shortage Mars Prospects: Industry participants face challenges due to the ongoing and very time-consuming transition of business models to the cloud. Additionally, lower spending on data center systems – mainly due to component shortages such as memory and CPUs and a slowdown in hyperscale spending – is likely to dampen the outlook for industry participants.
Zacks’ industry ranking suggests a bleak outlook
The Zacks Computer – Integrated Systems industry is part of the broader Zacks Computer and Technology sector. It carries a Zacks industry rank of #185, placing it in the bottom 27% of more than 250 Zacks industries.
The Group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates continued underperformance in the near term. Our research shows that the top 50% of industries evaluated by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of industries ranked by Zacks is a result of a negative earnings outlook for each company overall. Looking at the revisions to aggregate earnings estimates, analysts appear to be bearish on this group’s earnings growth potential. As of November 30, 2021, the industry’s 2022 earnings estimate is down 15.6%.
Despite the bleak industry outlook, some stocks are worth keeping an eye on due to strong earnings prospects. Before presenting you with some stocks to consider for your portfolio, let’s take a look at recent stock market performance and the valuation picture of the industry.
Industry beats sector and S&P 500
The Zacks Computer – Integrated Systems industry has outperformed the broader computer and technology sector and the Zacks S&P 500 Composite over the past year.
The industry is down 7.2% over the period, compared to the S&P 500 and the computer and technology sectors’ respective declines of 21.2% and 40%.
One-year price development
Current rating of the industry
Based on trailing 12-month P/E, which is a commonly used multiple for valuing computer integrated systems stocks, we see that the industry is currently trading at 1.59X, compared to the S&P 500’s 3.44X is also below the sector’s trailing 12-month P/E of 4.26X.
Over the past five years, the industry has traded as high as 2.15x and as low as 1.14x, with the median at 1.61x, as shown in the chart below.
Trailing 12-Month Price to Sales (P/S) Ratio.
4 Computer Integrated Systems Vendors to Watch
Agilysys: The company is a developer and marketer of hardware and software products and services with particular expertise in select vertical markets including retail and hospitality in North America, Europe, Asia Pacific and India.
This Zacks Rank #2 (Buy) company’s expertise in enterprise architecture and high availability, infrastructure optimization, storage and resource management, and business continuity is a key growth driver.
AGYS shares are up 43.7% year-to-date.
Zacks consensus estimate for fiscal 2022 earnings is up 3.3% over the past 30 days to 93 cents a share.
Price & Consensus: AGYS
ZoomInfo Technologies: The growing traction of this Zacks Rank #3 (Hold) company’s go-to-market intelligence platform due to increased consumer demand for data and insights is a major selling point.
ZoomInfo benefits from several improvements introduced to its platform such as: B. a real-time intelligence feed, mobile improvements to quick search and redesigns of contact profile alerts and the homepage. The company anticipates that these innovations will drive further user engagement on its platform.
The Zacks Consensus estimate for 2022 earnings is up 5% over the past 30 days to 84 cents a share. ZoomInfo shares are down 56.3% year-to-date.
Price & Consensus: ZI
International Business Machines: This Zacks #3 company benefits from strong demand for analytics, cloud computing, and security.
Synergies from the Red Hat buyout strengthen its competitive position in the hybrid cloud market. The company is likely to benefit from the robust adoption and wide availability of IBM Blockchain World Wire – a blockchain-powered global payments network that aims to accelerate and streamline cross-border payments.
IBM is also poised to benefit from spinning off its legacy infrastructure services business as it focuses on a hybrid cloud strategy.
Zacks consensus estimate for 2022 earnings has moved down 2.8% over the past 30 days to $9.12 per share. IBM shares are up 3.5% year-to-date.
Price & Consensus: IBM
PAR technology: The Company designs, develops, manufactures, markets, installs and services microprocessor based transaction processing systems for restaurants and industrial markets – corneal topography systems to measure the true topography of the eye and optical inspection systems for the food processing industry (commercial segment). PAR also engages in the design and implementation of advanced technology computer software systems for the Department of Defense and other government agencies.
PAR has achieved a market-leading position among cloud-based restaurant management software as a service. The company’s software business, Brink, is growing rapidly and its cloud-based restaurant point-of-sale software is deployed in more than 1,000 restaurants across multiple brands.
The Zacks consensus estimate for 2022 earnings for this Zacks Rank 3 company has remained steady at a loss of $1.43 per share over the last 30 days. Shares of PAR are down 55.6% year to date.
Price & Consensus: PAR