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In a report published Wednesday, Citigroup analyst Jim Suva discussed the Information Technology sector and offered his top picks heading into the second quarter earnings season.
Suva noted overall IT spending (excluding handsets) in 2015 is expected to remain "tempered" at three percent in constant currency terms. The analyst added that the IT market is "stable overall," but PC data points continue to weaken.
In terms of foreign exchange, Suva stated that shifts in the value of currencies could prove to be a "slight" tailwind during the quarter given recent moves in the Euro, following a couple of quarters of "significant" headwinds.
"While 2013 was a year of stock buyback and dividend announcements, and 2014 was a year better than feared for PCs, we see 2015 focused on M&A with the distributors being very active as well," Suva wrote. "We also see continued shifting enterprise spending away from traditional IT spending (servers and storage) and more toward security, software, cloud, big data, data analytics, and smart/mobile marketing/apps."
Apple Remains Top Pick
Suva stated that
Apple Inc.AAPL remains his top pick, especially among "jumbo mega cap" names. The analyst added that "solid" demand for its devices coupled with aggressive promotions from carriers to enable "easier than ever" upgrades to new devices continued in the quarter.
Suva also pointed out that Apple shares are still trading at an "attractive" valuation level of 10-11x next twelve-months (NTM) earnings per share cash.
Hewlett-Packard CompanyHPQ is Suva's top pick among large caps ahead of its break up.
Xerox CorpXRX is the analyst's top mid cap pick as it utilizes proceeds from the sale of its IT Outsourcing business to pursue accretive acquisitions in services.
Finally,
is the top small cap pick given its increasing traction in the higher margin ceramic ink market.
Suva also reiterated a Sell rating on
Lexmark International IncLoading...
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while also reiterating Neutral ratings on
International Business Machines Corp.IBM,
EMC CorporationEMCNetApp Inc.NTAP due to a "lack of near term positive catalysts."
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