The U.S. tech industry is one of the most dynamic and innovative in the world. Companies in this space constantly develop new products and services and disrupt traditional industries. Despite facing multiple macroeconomic headwinds over the past two years, the sector is poised to rake in significant profits in the long term.

As a result, the time looks ripe for watching quality tech stocks Cognizant Technology Solutions Corporation (CTSH), Gartner, Inc. (IT), and The Hackett Group, Inc. (HCKT) in the Outsourcing - Tech Services industry, which is rated A (Strong Buy) in our proprietary POWR Ratings system.

IT services are vital for organizations to optimize their information and business processes, staying competitive by embracing advanced technologies in this era of increasing data generation.

The data-driven analysis supported by technology drives strategic decisions across various industries globally. According to Gartner, spending on IT services this year is forecasted to increase 8.8% year-over-year to hit $1.42 trillion.

In addition, IT outsourcing is experiencing a surge driven by the rapid pace of digitalization, the widespread adoption of enterprise applications, and the growing popularity of remote work arrangements.

According to Statista, revenue in the IT outsourcing market is projected to reach $460.10 billion in 2023. Further, the market is expected to grow at an 11.1% CAGR, resulting in a market volume of $777.70 billion by 2028.

Moreover, with the growing demand for tech skills, connectivity, and digitization, the overall outlook of the technology sector remains positive. Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 33.3% returns year-to-date.

With that being said, let’s dive deeper into the fundamentals of the above-mentioned stocks in detail:

Cognizant Technology Solutions Corporation (CTSH)

CTSH is a renowned professional services company that offers consulting, technology, and outsourcing services worldwide. It operates through four segments: Financial Services; Health Sciences; Products and Resources; and Communications, Media, and Technology.

On August 2, CTSH is leveraging an extended partnership with Google Cloud to develop healthcare Large Language Model (LLM) solutions using generative AI. This collaboration will initially target enhancing administrative processes like appeals, grievances, and patient engagement in the healthcare sector.

The initiative harnesses Google Cloud’s Vertex AI platform and CTSH’s healthcare expertise to address various business challenges.

“Together, Cognizant and Google Cloud are moving beyond highly publicised content generation applications of generative AI to build enterprise healthcare solutions that drive significant cost optimization, business efficiencies, and better experience,” said Ravi Kumar S, CEO of CTSH.

On July 24, CTSH expanded its partnership with Gilead Sciences, Inc. (GILD), a biopharmaceutical leader, to manage GILD’s global IT infrastructure, applications, and analytics and drive digital transformation efforts.

The renewed and expanded collaboration, valued at $800 million over five years, aims to accelerate the development of life-saving medicines for conditions like HIV, viral hepatitis, and cancer, streamlining GILD’s business processes.

On June 28, 2023, CTSH and ServiceNow, Inc. (NOW) announced a strategic partnership to advance the adoption of AI-driven automation across industries. The expanded alliance is expected to help accelerate the path toward building a combined $1 billion business for CTSH and NOW.

Cognizant’s ServiceNow Business Group would help joint clients challenged by rising costs, growing tech debt, manual processes, and sub-optimal customer experiences deploy AI to help drive improvements in three key areas: enriched operational effectiveness, enhanced experience, and expedited innovation.

During the second quarter that ended June 30, 2023, CTSH’s revenue from Products & Resources increased 3.2% to $1.17 billion, while its revenue from Health Sciences increased 2.3% year-over-year to $1.44 billion.

Its bookings grew 17% from the prior-year quarter during the same period. Its adjusted income from operations amounted to $694 million, while its non-GAAP earnings per share came in at $1.10.

Its cash and cash equivalents at the end of the period increased 16.2% year-over-year to $2.05 billion. In addition, as of June 30, 2023, its total assets of $17.97 billion increased marginally compared to $17.85 billion for the period ended December 31, 2022.

For the fiscal fourth quarter (ending December 2023), CTSH’s revenue is expected to increase marginally year-over-year to $4.88 billion. Its EPS estimate of $1.07 for the next quarter indicates a year-over-year growth of 5.9%. Additionally, it topped the EPS and revenue estimates in three of the trailing four quarters.

The stock has gained 21.5% year-to-date to close the last trading session at $69.23.

CTSH’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

CTSH also has a B grade for Quality. It is ranked #2 out of nine stocks in the A-rated Outsourcing - Tech Services industry. Click here to see the other ratings of CTSH for Growth, Value, Momentum, Stability, and Sentiment.

Gartner, Inc. (IT)

IT operates as a research and advisory company through its three broad segments: Research; Conferences; and Consulting. The company offers services such as subscription services that include on-demand access to published research content, market research, custom analysis, and on-the-ground support services, etc.

IT’s revenue increased 9.2% year-over-year to $1.50 billion for the second quarter that ended June 30, 2023. Its cash provided by operating activities stood at $436 million, up 4.8% from the prior-year period. The company’s adjusted EPS remained flat year-over-year at $2.85. In addition, its non-GAAP free cash flow increased 3.8% year-over-year to $410 million.

Street expects IT’s revenue to increase 4.1% year-over-year in the current quarter (ending September 2023) to $1.39 billion. For the fiscal year 2023, its revenue is projected to reach $5.88 billion, registering an increase of 6.9% from the prior-year period. Additionally, it surpassed the revenue estimates in each of the trailing four quarters, which is excellent.

Over the past year, the stock has gained 4.8% to close the last trading session at $331.04.

IT’s POWR Ratings reflect this promising outlook. It has a B grade for Quality. Among the nine stocks in the same industry, it is ranked #4.

To see IT’s ratings for Value, Momentum, Stability, Sentiment, and Growth, click here.

The Hackett Group, Inc. (HCKT)

HCKT is a global strategic advisory and technology consulting firm. It operates through three segments: Global Strategy & Business Transformation; Oracle Solutions; and SAP Solutions. The company offers best practice research, benchmarking, Oracle and SAP solutions, and peer interaction to help businesses improve their performance.

On May 2, Answerthink, a subsidiary of HCKT, entered into an agreement with Nagarro to sell and support its ComplianceNOW suite to U.S. companies using SAP software. ComplianceNOW is a cloud-based compliance software suite that helps make SAP compliance more manageable and transparent. This could benefit the company.

HCKT’s total revenue increased marginally year-over-year to $77.10 million for the second quarter that ended June 30, 2023. The company’s adjusted net income amounted to $10.76 million, while its non-GAAP net income per common share grew 2.6% from the year-ago value to $0.39.

In addition, as of June 30, 2023, its total current liabilities stood at $110.03 million, down 13.2% compared to $126.72 million for the period ended December 31, 2022.

Subsequent to the end of the second quarter, the company’s Board of Directors declared its third quarter 2023 dividend of $0.11 per share, payable to its shareholders on October 6, 2023.

HCKT’s annual dividend of $0.44 yields 1.85% at the current price level, while its four-year average dividend yield is 2.18%. Its dividend payouts have increased at a 16.9% CAGR over the past three years and a 6.6% CAGR over the past five years.

The consensus revenue estimate of $74.68 million for the third quarter (ending September 2023) represents a 3.7% increase year-over-year. The consensus EPS estimate of $0.39 for the current quarter indicates a 6.3% improvement year-over-year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

HCKT’s shares have gained 25.5% over the past three months to close the last trading session at $23.77.

HCKT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of a B, which translates to Buy in our proprietary rating system.

It has a B grade for Sentiment, Stability, and Quality. Out of the nine stocks in the same industry, it is ranked first. To see HCKT’s ratings for Growth, Momentum, and Value, click here.

What To Do Next?

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CTSH shares were trading at $69.73 per share on Thursday afternoon, up $0.50 (+0.72%). Year-to-date, CTSH has gained 23.02%, versus a 15.50% rise in the benchmark S&P 500 index during the same period.

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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