Increasing tech spending amid growing tech inclination is expected to boost the industry. However, the macroeconomic headwinds could keep the industry under pressure in the near term. While Nomura Research Institute, Ltd. (NRILY) could be an ideal buy, fundamentally neutral stock Accenture plc (ACN) and Wipro Limited (WIT) might be best kept on hold.
Globally, the increased IT spending, coupled with the widespread adoption of software-as-a-service and expanded cloud-based offerings, indicates the rise in the demand for IT services in the industry. The IT services market is expected to grow at a CAGR of 8.4% to reach $1.67 trillion by 2028.
Moreover, with digital transformation and increasing applications and extensions provided by IT, the segment of IT outsourcing has been growing steadily in the past few years and is anticipated to witness significant growth in the upcoming years.
As a result, revenue in the segment of IT Outsourcing is expected to grow at a CAGR of 7.5%, resulting in a market volume of $208.50 billion by 2027.
However, the recent collapse of the US banking sector, including the collapse of Silicon Valley Bank, Credit Suisse, and First Republic Bank, the biggest banking failure since the 2008 financial crisis, is likely to be felt across the technology landscape globally over the coming years.
Take a look at the stocks mentioned above:
Stock to Buy:
Nomura Research Institute, Ltd. (NRILY)
Headquartered in Tokyo, Japan, NRILY provides consulting, financial information technology solution, industrial IT solution, and IT platform services in Japan.
NRILY pays $0.33 annually as dividends. This translates to a yield of 1.19% at the current price, compared to the 4-year average dividend yield of 1.34%. Its dividend payments have grown at a CAGR of 3.3% over the past three years.
Its trailing-12-month EBITDA margin of 22.28% is 173.7% higher than the 8.14% industry average. Its trailing-12-month net income margin of 11.02% is 458.7% higher than the 1.97% industry average.
NRILY’s revenue increased 7.6% year-over-year to YEN176.11 billion ($1.24 billion) in the fourth quarter, which ended March 31, 2023. The company’s gross profit increased 7.2% year-over-year to YEN60.06 billion ($424.12 million), while its earnings per common share increased 23.2% year-over-year to YEN35.80.
Analysts expect NRILY’s revenue for the fiscal first quarter ending June 2023 to be $1.23 billion.
The stock has gained 23.2% over the past three months to close the last trading session at $27.95.
NRILY’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
NRILY also has an A grade for Stability. It is ranked #2 of 9 stocks in the A-rated Outsourcing - Tech Services industry.
To access additional ratings for NRILY’s Value, Growth, Sentiment, Quality, and Momentum, click here.
Stocks to Hold:
Accenture plc (ACN)
Based in Dublin, Ireland, ACN is a professional services company that provides strategy and consulting, interactive, industry X, song, and technology and operation services worldwide.
On June 13, 2023, ACN announced a $3 billion investment over three years in its Data & AI practice to help clients across all industries rapidly and responsibly advance and use AI to achieve greater growth, efficiency, and resilience.
On June 1, ACN acquired Nextira, an Amazon Web Services Premier Partner that uses AWS to deliver cloud-native innovation, predictive analytics, and immersive experiences for its clients.
These services and solutions will bolster ACN Cloud First’s robust set of engineering capabilities and help clients take advantage of a full continuum of cloud capabilities and tools.
ACN pays $4.48 annually as dividends. This translates to a yield of 1.40% at the current price, compared to the four-year average dividend yield of 1.33%. Its dividend payments have grown at a CAGR of 3.9% over the past three years respectively.
ACN’s trailing-12-month EBITDA margin of 16.94% is 108.2% higher than the 8.14% industry average. However, its trailing-12-month gross profit margin of 32.12% is 34.8% lower than the 49.24% industry average.
ACN’s revenues increased 5.1% year-over-year to $15.81 billion in the fiscal second quarter that ended February 28, 2023. However, its net income declined 6.4% year-over-year to $1.55 billion. Its EPS decreased 65.9% year-over-year to $2.39.
ACN’s revenue is expected to increase 2.1% year-over-year to $16.49 billion for the fiscal third quarter that ended May 2023. Its EPS is expected to increase 3.4% year-over-year to $3 in the same quarter. Also, it has surpassed revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 25.7% over the past three months to close the last trading session at $317.40.
ACN’s neutral prospects are reflected in its POWR Ratings. The stock has an overall C rating, equating to a Neutral in our proprietary rating system.
ACN has a C grade for Growth. It is ranked #4 in the same industry.
Click here to see the additional POWR Ratings for ACN (Sentiment, Momentum, Quality, Stability, and Value).
Wipro Limited (WIT)
Based in Bengaluru, India, WIT operates as an information technology, consulting, and business process services company worldwide. It operates through three segments: IT Services; IT Products; and India State Run Enterprise Services (ISRE).
On June 15, 2023, WIT announced the opening of its new 5G Def-i Innovation Center (the Center) in Austin, Texas, underscoring the company’s commitment to helping clients realize the benefits of 5G technology through safer, more sustainable, and compliant products and services.
On June 7, 2023, WIT launched a managed private 5G-as-a-Service solution in partnership with Cisco Systems, Inc. (CSCO). The new offering enables enterprise customers to achieve better business outcomes through the seamless integration of private 5G with their existing LAN/WAN/Cloud infrastructure.
While WIT’s trailing-12-month net income margin of 12.54% is 535.7% higher than the 1.97% industry average, its trailing-12-month gross profit margin of 28.67% is 41.8% lower than the 49.2% industry average.
WIT’s revenues increased 17.7% year-over-year to Rs208.60 billion ($2.54 billion) in the fiscal fourth quarter that ended March 31, 2023. Its profit for the period increased 140.2% year-over-year to Rs30.93 billion ($376.93 million). Yet, its earnings per equity share decreased 5.6% year-over-year to Rs5.61.
Street expects WIT’s revenue to increase 3.5% year-over-year to $2.79 billion for the fiscal first quarter ending June 2023. Its EPS is expected to increase 15.5% year-over-year to $0.07 in the same quarter. But it has failed to surpass EPS estimates in each of the trailing four quarters, which is disappointing.
The stock has gained 2.4% over the past three months to close the last trading session at $4.63.
It is no surprise that the stock has an overall C rating, equating to a Neutral in our proprietary rating system.
WIT also has a C grade for Value and Sentiment. It is ranked #6 in the same industry.
Beyond what is stated above, we’ve also rated for Growth and Momentum. Get all WIT ratings here.
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NRILY shares were trading at $28.49 per share on Wednesday morning, up $0.54 (+1.93%). Year-to-date, NRILY has gained 20.88%, versus a 14.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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