The information technology (IT) services industry is undergoing a major transformation owing to the rapidly-changing technology landscape. Rising demand for IT service solutions, driven by the ongoing digital transformation is a key driver for industry players.
Notably, increasing digital deals are expected to be long-term revenue catalysts for companies in this sector. Moreover, the evolution of automation on the back of bullish customer sentiment is instrumental in expanding market opportunities.
Additionally, the industry’s growth is likely to accelerate in the days ahead on the back of greater number of mobile workers, attributable to the ongoing workspace trend of Bring Your Own Devices (BYOD).
Further, recovery in IT spending during 2020 might be a key catalyst for industry players. Per the latest Gartner report, worldwide IT spending will reach $3.88 trillion in 2020, indicating a 3.7% increase from the year-ago reported figure. Notably, IT Services segment spending is predicted to be up 5.5% and touch $1.1 trillion next year.
Picking the Right Stocks
Notably, there is a universe of stocks in the IT services industry that is worth considering, given the strong fundamentals and a robust growth potential.
It is here that Zacks’ proprietary methodology comes in handy. We picked four stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) and an attractive Growth Score of A or B as the combination offers the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Further, these stocks have outperformed the S&P 500 Index and the industry's growth of 28% and 27.2%, respectively, so far this year.
One Year Price Performance
Fair IsaacCorporation FICO provides analytical solutions and data management products to financial institutions, retailers, healthcare organizations and public agencies.
The company is benefiting from its Scores business, which witnessed strong growth for the past several years. Special pricing initiative for the Scores business is a positive for 2020. Moreover, growth in its software business is a tailwind.
The Zacks #1 Ranked stock has a Growth Score of B and average four-quarter positive surprise of 13.2%. Shares have soared 100.2% so far this year. Moreover, the Zacks Consensus Estimate for fiscal 2020 earnings has improved 1.7% in the past 60 days to $8.37 per share.
CDW Corporation CDW is a provider of integrated IT solutions for business, government, education and healthcare customers, primarily in the United States and Canada.
The company has been witnessing growth across all U.S. channels and international operations. Notably, its customer end markets as well as expanding product and technology portfolio are key drivers.
This Zacks Rank #2 stock has a Growth Score of A and average four-quarter positive earnings surprise of 9.1%. The Zacks Consensus Estimate for 2020 earnings of $6.55 has increased 0.6% in the past 60 days. Shares have returned 76.2% so far this year.
EPAM Systems EPAM is engaged in offering services pertaining to software product development, custom application development, application testing, etc.
The company has been benefiting from broad-based growth across its industry verticals and geographies. Digital transition, focus on customer engagement and product development are major upsides.
EPAM has a Zacks Rank #2 and a Growth Score of B. The company came up with average four-quarter positive surprise of 3.8%. The Zacks Consensus Estimate for 2020 earnings has inched up 1.3% to $6.47 in the past 60 days. Shares have surged 81.2% so far this year.
Endava plc DAVA is a U.K.-based company providing IT service for finance, insurance and healthcare, retail and consumer goods, telecommunications, media and technology industries.
The company is gaining traction from buoyant demand for digital initiatives. Burgeoning customer base and addition of new ones is a positive as well.
Endava has a Zacks Rank of 2 and a Growth Score of A. The company pulled off average four-quarter positive earnings surprise of 25%. The Zacks Consensus Estimate for fiscal 2020 earnings has been revised 5.6% upward to $1.13 in the past 60 days. Shares have jumped 94.4% so far this year.
Zacks Top 10 Stocks for 2020
In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2020?
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