For Immediate Release
Chicago, IL – April 20, 2023 – Today, Zacks Equity Research discusses IBM IBM, Hewlett Packard Enterprise HPE, Agilysys AGYS and PAR Technology PAR.
Industry: Technology Solutions
Players in the Zacks Computer – Integrated Systems industry are grappling with lingering COVID-induced supply-chain bottlenecks. A challenging macroeconomic landscape with rising inflation is also a concern. Soaring prices and persistent delays in customer acceptance have resulted in high levels of backlog and cast a pall on the industry's prospects. Nonetheless, IBM, Hewlett Packard Enterprise, Agilysys and PAR Technology are a few industry participants to watch as they are benefiting from the rise in advanced forms of data management, the rapid shift from traditional silos, increased demand for integration of deployment techniques as well as modern application development.
The Zacks Computer – Integrated Systems industry comprises companies that provide advanced information technology solutions, including computer systems, software, storage systems and microelectronics. These industry players are increasing investments in data modernization and analytics, cyber defense, remote work, automation and contact-less services, customer & employee experience, and supply-chain modernization, which accelerate growth in digital transformation services.
Some industry participants also provide technological solutions (both products and services) to aid organizations in connecting, interacting and transacting with customers. Others develop and market information recognition, data entry software, systems as well as technologies.
4 Computer - Integrated Systems Industry Trends in Focus
Integrated Solutions Driving Demand: The industry is benefiting from rising demand for integrated solutions across small, medium and large-scale enterprises, along with increasing investments in IoT, big data, AI and blockchain software technologies. Moreover, business analytics, cloud computing, mobile, and security and social businesses present significant opportunities to an increasing number of remote workers in the wake of the coronavirus-induced work-from-home wave. The industry players are anticipated to benefit from recovering global IT spending, as predicted by Gartner.
Solid Adoption of Multi-Cloud Model: The growing adoption of the multi-cloud model to achieve better scalability and attain improved resource utilization is also expanding the scope of the industry participants. Cloud and hardware/software virtual technologies are anticipated to favorably impact the industry. As growth and investment opportunities in developed countries continue to slow down, we believe that emerging economies will play a crucial role in the days ahead.
Supply-Chain Bottlenecks and Backlogs: Industry participants are witnessing supply constraints, softness in server demand and cognitive applications, as well as delays in customer acceptance, in turn resulting in high levels of backlog, particularly in Compute, High Performance Computing & Mass Storage Class and Storage. Moreover, volatility in foreign exchange — primarily 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 are facing challenges owing to the ongoing and heavily time-consuming business model transition to the cloud. Further, lower spending across Data-Center Systems — primarily due to component shortages like memory and CPUs, as well as deceleration in hyperscale spending — is likely to dampen the prospects of the industry participants.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Computer – Integrated Systems industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #190, which places it in the bottom 24% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry's position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic on this group's earnings growth potential. Since Apr 30, 2022, the industry's earnings estimate for 2023 has moved down 14.8%.
Despite the gloomy industry outlook, a few stocks are worth watching based on a strong earnings outlook. Before we present a few 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 Computer – Integrated Systems industry has underperformed the broader Computer and Technology sector and Zacks S&P 500 composite over the past year.
The industry has declined 14.3% over this period compared with the S&P 500 and broader Computer and Technology sector's respective declines of 7.5% and 7.8%.
Industry's Current Valuation
On the basis of the trailing 12-month P/S, which is a commonly used multiple for valuing computer-integrated systems stocks, we see that the industry is currently trading at 1.46X compared with the S&P 500's 3.64X. It is also below the sector's trailing 12-month P/S of 3.72X.
Over the past five years, the industry has traded as high as 2.15X and as low as 1.14X, with the median being at 1.57X.
4 Computer-Integrated Systems Providers to Watch
International Business Machines: This Zacks Rank #3 (Hold) company is riding on steady demand for analytics, cloud computing and security.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Synergies from the Red Hat buyout are boosting its competitive position in the hybrid cloud market. The company is likely to benefit from the robust adoption and broad-based availability of IBM Blockchain World Wire — a blockchain-driven global payments network aimed at accelerating and optimizing cross-border payments.
IBM is also poised to gain from the spin-off of the legacy infrastructure services business as it focuses on a hybrid cloud strategy. However, a challenging macroeconomic environment, inflationary pressures and business uncertainty are forcing various firms to have a conservative approach to earmark funds for digital transformation and cloud adoption. In the near term, this is expected to lead to top-line contraction in the Software segment, which includes Hybrid Platform & Solutions comprising software services, Red Hat, automation and data & AI businesses and Transaction Processing.
The Zacks Consensus Estimate for its 2023 earnings has moved south by 0.1% to $9.45 per share over the past 30 days. IBM's shares are down 9.3% year to date.
Hewlett Packard Enterprise: HPE is benefiting from improved supply-chain execution and higher demand for its cloud services owing to the ongoing digital transformation. Hewlett Packard views AI, Industrial Internet of Things and distributed computing as the next major markets.
HPE's efforts to shift focus to higher-margin offerings like Intelligent Edge and Aruba Central Hyperconverged Infrastructure are aiding the bottom line. HPE's shares have decreased 1.1% year to date.
The buyout of San Jose-based OpsRamp, which is anticipated to conclude in third-quarter fiscal 2023, is expected to strengthen Hewlett Packard's Greenlake platform and its position in hybrid cloud, expanding its reach into IT operations management. OpsRamp is a software-as-a-service platform that discovers, monitors, observes, automates and manages IT infrastructure, cloud resources, workloads and applications for hybrid and multi-cloud environments. The integrated HPE solution, available standalone as-a-service, is likely to lower the operational complexity of multi-vendor and multi-cloud IT environments that are in the public cloud, colocations and on-premises.
However, organizations have been shifting to cloud computing owing to their maintenance-free and cost-effective structure compared with standalone servers, which can undermine this Zacks Rank #3 company's near-term prospects.
Notably, the Zacks Consensus Estimate for 2023 earnings has remained steady at $2.07 per share over the past 30 days.
Agilysys: The company operates as a developer and marketer of hardware and software products as well as services, with special expertise in select vertical markets, including retail and hospitality in North America, Europe, the Asia-Pacific and India.
This Zacks Rank #3 company's expertise in enterprise architecture and high availability, infrastructure optimization, storage and resource management, as well as business continuity, is a major growth driver. On the third-quarter fiscal 2023 earnings call, the company raised the full-year fiscal 2023 revenue guidance to $195 to $198 million, inclusive of close to 30% subscription revenue growth year over year.
The Zacks Consensus Estimate for its fiscal 2023 earnings has remained steady at 93 cents per share over the past 30 days. Shares of AGYS have gained 6.7% year to date.
PAR Technology: The company designs, develops, manufactures, markets, installs, and services microprocessor-based transaction processing systems for the restaurant and industrial marketplaces, including Corneal Topography systems for measuring the true topography of the eye and vision inspection systems for the food-processing industry (Commercial Segment). PAR is also engaged in the design and implementation of advanced-technology computer software systems for the Department of Defense and other government agencies.
PAR has attained a position of market leadership among cloud-based restaurant management Software as a Service providers. The company's software business, Brink, is growing very quickly and its restaurant cloud-based Point of Sale software is deployed over multi-brands at more than 1,000 restaurants.
The Zacks Consensus Estimate for this Zacks Rank #3 company's 2023 bottom line has remained steady at a loss of 97 cents per share over the past 30 days. PAR's shares have risen 26.1% year to date.
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