The technology sector is growing exponentially thanks to advancements in domains like artificial intelligence (AI), cloud computing, and cybersecurity. Chief equity strategist at U.S. Bank Wealth Management, Terry Sandven, notes, "To a large degree, technology is impacting all sectors of the economy in all walks of life.”
With AI, cloud services, and IoT being integrated across industries like automotive, healthcare, and finance, the sector’s market performance is significantly boosting. Thus, investors looking to capitalize on this trend could consider investing in fundamentally sound tech stocks like Leidos Holdings, Inc. (LDOS), Science Applications International Corporation (SAIC), and Sanmina Corporation (SANM).
The global IT market is poised to expand rapidly at a CAGR of 11%, reaching $26.93 trillion by 2032. This ongoing digital transformation among industries will ensure that tech companies remain central to driving future economic development.
Moreover, Gartner’s latest research for worldwide IT spending forecasts a total of $5.26 trillion in 2024, an increase of 7.5% from 2023. With both the private sector pushing innovation and public-sector investments flowing into the tech space, the industry is poised for sustained momentum and long-term growth.
Considering these conducive trends, let’s look at the fundamentals of the above-mentioned Technology - Services picks in detail:
Stock #3: Sanmina Corporation (SANM)
SANM provides integrated manufacturing solutions, components, products and repair, logistics, and after-market services worldwide. It operates through two business segments: Integrated Manufacturing Solutions; and Components, Products and Services.
In the fiscal third quarter that ended on June 29, 2024, SANM’s net sales stood at $1.84 billion. The company’s non-GAAP net income came in at $70.83 million or $1.25 per share. Also, its free cash flow grew significantly from the year-ago value to $67.23 million.
According to the fiscal 2024 outlook for the fourth quarter, SANM’s revenue is projected to be between $1.90 billion and $2 billion. The company’s EPS is anticipated to fall between $1.02 and $1.12, while its non-GAAP EPS is expected to range from $1.30 to $1.40.
Street expects SANM’s revenue for the fiscal first quarter (ending December 2024) to increase 6.3% year-over-year to $1.99 billion. Its EPS for the same quarter is expected to improve 9.5% from the prior year to $1.42.
SANM’s shares have surged 30.5% over the past nine months and 23.5% over the past year to close the last trading session at $66.88. Moreover, the stock is currently trading above its 200-day moving average of $63.16.
SANM’s stance is apparent in its POWR Ratings. The stock has a B grade for Momentum. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Among the 76 stocks in the Technology - Services industry, it is ranked #26. Click here to see the additional SANM ratings (Growth, Value, Stability, Sentiment, and Quality).
Stock #2: Science Applications International Corporation (SAIC)
SAIC is a technology integrator providing full life cycle services and solutions in the technical, engineering, and enterprise information technology (IT) markets. The company's offerings include services across defense, space, civilian, and intelligence markets.
On September 18, SAIC received an award of $229 million from the U.S. Department of Defense, to provide vital IT solutions under the NORAD/USNORTHCOM Information Technology Enterprise Services (NITES) program. SAIC will help NITES with innovation, modernization, and efficiency in its program, deploying solutions in IT service, cloud migration, and cybersecurity.
On August 15, SAIC announced receiving three contracts of $58.20 million from the U.S. Navy, to support the Airborne Electronic Attack (AEA) Integrated Product Team (IPT) Jammer Technique Optimization (JATO) Program, the International Program, and the AEA IPT EA-18G Program. This deal will allow SAIC to deliver mission-critical solutions that include a wide range of technical services and support.
For the second quarter of 2024, which ended on August 2, SAIC’s total revenues increased 1.9% year-over-year to $1.82 billion. Its adjusting operating income stood at $164 million, indicating a marginal growth from the prior-year quarter period.
Its non-GAAP net income came in at $105 million, while its non-GAAP EPS remained flat year-over-year at $2.05. In addition, the company’s transaction-adjusted free cash flow grew 68.5% from the year-ago value to $241 million.
Looking ahead, SAIC anticipates revenue for the fiscal year 2025 to be between $7.35 billion and $7.50 billion. Its adjusted EBITDA and free cash flow are anticipated to be in the range of $680-$700 million and $490-$510 million, respectively. The company also projects adjusted EPS to fall between $8.10 and $8.30.
Analysts expect SAIC’s revenue for the fourth quarter (ending January 2025) to increase 3.8% year-over-year to $1.80 billion, while its EPS for the same period is expected to grow 44.1% from the prior year to $2.06. Moreover, the company topped the consensus revenue estimates in each of the trailing four quarters.
SAIC’s stock has gained 34.9% over the past year and 23% over the past three months to close the last trading session at $140.77. The stock is currently trading above its 50-day and 200-day moving averages of $129.05 and $128.23, respectively, indicating an uptrend.
SAIC’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
SAIC has a B grade for Growth, Value, and Momentum. It is ranked #7 in the same industry. Click here to see other ratings for SAIC (Stability, Sentiment, and Quality).
Stock #1: Leidos Holdings, Inc. (LDOS)
LDOS is engaged in developing smarter technology solutions, particularly for customers in highly regulated industries. The company operates through three segments: Defense Solutions; Civil; and Health.
On September 3, LDOS received a $51 million award from the National Healthcare Safety Network (NHSN) Development, Maintenance, Support, and Modernization contract by the Centers for Disease Control and Prevention (CDC), National Center for Emerging and Zoonotic Infectious Diseases. This 5-year contract includes LDOS’ leveraging its data management band mission software expertise to the NHSN platform.
On August 27, LDOS announced it received a $51 million contract for Missile Warning/Missile Track Enhancement (MW/MT) from the Space Systems Command, Strategic Warning and Surveillance Systems Acquisition Delta. This 54-month deal will enhance missile warning capabilities with mission software and technology-enabled services.
LDOS' net revenue for the second quarter (ended June 28, 2024) increased 7.7% year-over-year to $4.13 billion. Further, it reportean d adjusted EBITDA of $559 million, indicating a 33.1% growth from the prioyear'sar quarter with a margin of 13.5% (up 260 bps year-over-year).
In addition, its non-GAAP free cash flow rose 183.1% from the year-ago value to $351 million. LDOS’ non-GAAP net income for the quarter amounted to $358 million, and its non-GAAP EPS to $2.63, reflecting an increase of 43.8% and 46.1%, respectively, from last year.
The consensus revenue estimate of $4.13 billion for the fiscal fourth quarter (ending December 2024) represents a 3.7% increase year-over-year. The consensus EPS estimate of $2.11 for the same quarter indicates a 6.1% improvement year-over-year. The company has an impressive surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past year, the stock has surged 79.1%, closing the last trading session at $165.01. LDOS’ stock is trading above its 50-day and 200-day moving averages of $152.44 and $135.55, respectively.
LDOS’ bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Momentum, Stability, and Sentiment. Within the Technology – Services industry, it is ranked first out of 76 stocks. Click here to see LDOS’ ratings for Value and Quality.
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LDOS shares were trading at $165.08 per share on Wednesday afternoon, up $0.07 (+0.04%). Year-to-date, LDOS has gained 53.75%, versus a 20.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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