The technology services industry is continuously adopting and implementing technologies like the Internet of Things (IoT), edge computing, cloud, artificial intelligence (AI), blockchain and biometrics, advanced data analytics and machine learning. This trend should keep increasing demand for the services.
Industry participants are increasingly opting for partnerships (both internal and external), mergers and acquisitions to expand into new markets and technologies. Industry players are also gearing up to assess global operations, which include supply chain, treasury, distribution, sales and marketing and finance, to function more effectively.
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #87. This rank places it in the top 34% of more than 250 Zacks industries and indicates solid near-term growth prospects.
Given this backdrop, it is not a bad idea to undertake a comparative analysis of two Zacks Technology Services stocks — IQVIA Holdings Inc. IQV and Aptiv PLC APTV. While IQVIA Holdings has a market capitalization of $29.65 billion, Aptiv’s market cap is $23.10 billion.
As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Aptiv clearly scores over IQVIA Holdings in terms of price performance. So far this year, shares of Aptiv have gained 45.6% compared with 29.9% rise of IQVIA Holdings. The industry and Zacks S&P 500 composite registered growth of 15% and 18.7%, respectively, in the same time frame.
Earnings growth and stock price gains often serve as indication of a company’s strong prospects.
IQVIA Holdings’ third-quarter 2019 earnings are projected to grow 9.6% year over year compared with 5% for Aptiv. Looking at the full-year 2019 picture, earnings of IQVIA Holdings are expected to grow 14.8%, while that of Aptiv are anticipated to decrease 2.8% year over year. For 2020, IQVIA Holdings’ earnings are expected to register 15% growth compared with 12.8% for Aptiv.
Further, IQVIA Holdings has a long-term expected EPS (three to five years) growth rate of 14% while the same for Aptiv is 11.1%.
Thus, IQVIA Holdings has an edge over Aptiv in terms of quarterly and yearly earnings growth projection.
Earnings Surprise History
The earnings surprise history of a stock helps investors have an idea of its performance in the previous quarters.
IQVIA Holdings and Aptiv have an impressive earning surprise history, wherein both the company’s earnings have surpassed the Zacks Consensus Estimate in each of the previous four quarters.
However, Aptiv delivered average positive earnings surprise of 9.2% compared with 1.3% for IQVIA Holdings.
Net profit margin helps investors evaluate a company’s business model in terms of pricing policy, cost structure and operating efficiency, and shows how good it is at converting revenues into profits. Hence, a strong net profit margin is preferred by all classes of investors.
While IQVIA Holdings has a TTM net margin of 2.3%, the same stands at 6.9% for Aptiv. Though both the stocks compare unfavorably with the Zacks S&P 500 composite’s figure of 12.2%, Aptiv has a higher TTM net margin than IQVIA Holdings.
EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization) ratio is the commonly used metric for valuing technology services stocks because of their high debt levels.
We observe that IQVIA Holdings and Aptiv have EV/EBITDA ratio of 14.4 and 11.7, respectively, while that of the Zacks S&P 500 composite is 11.2.
Although both the companies compare unfavorably with the benchmark index, Aptiv has a lower EV/EBITDA value than IQVIA Holdings.
Our comparative analysis shows that Aptiv scores over IQVIA Holdings in terms of price performance, earnings surprise history and net margin. IQVIA Holdings has an edge in terms of quarterly and yearly projected earnings growth.
Despite a fast share price rally on a year-to-date basis, Aptiv‘s valuation is cheap compared with IQVIA Holdings.
Stocks to Consider
Some better-ranked stocks in the broader Zacks Business Services sector are Huron Consulting HURN, Charles River Associates CRAI and Fiserv FISV. While Fiserv sports a Zacks Rank #1, Huron Consulting and Charles River Associates carry a Zacks Rank #2 (Buy).
Long-term earnings (three to five years) growth rate for Huron Consulting, Charles River Associates and Fiserv is estimated to be 15.6%, 13% and 12%, respectively.
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Charles River Associates (CRAI) : Free Stock Analysis Report
Huron Consulting Group Inc. (HURN) : Free Stock Analysis Report
Fiserv, Inc. (FISV) : Free Stock Analysis Report
IQVIA Holdings Inc. (IQV) : Free Stock Analysis Report
Aptiv PLC (APTV) : Free Stock Analysis Report
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