Four Top IT Services Stocks With Rising Alphas (ADS, CSC, FISV, IBM)
A new Oppenheimer research report focuses on the information technology (IT) services industry, with its positive earnings and increasing domestic and global demand. The report also cited positive and rising alphas as a reason for its optimism.
The analysts' top IT services picks include Alliance Data Systems (NYSE: ADS), Computer Sciences (NYSE: CSC), Fiserv (NASDAQ: FISV) and IBM (NYSE: IBM). Below we take a look at how these four stocks have fared and what analysts in general expect from them.
Alliance Data Systems
This marketing and loyalty solutions provider recently announced a new long-term partnership with the Geddes Group. It sports a market capitalization of more than $9 billion but does not offer a dividend. Its long-term earnings per share (EPS) growth forecast is about 15 percent, and the return on equity is more than 81 percent.
Five of the 23 analysts surveyed by Thomson/First Call rate the stock at Strong Buy, and another 10 also recommend buying shares. However, the price target, or where analysts expect the share price to go, is a little more than seven percent higher than the current share price. That would be a new 52-week high, though.
Shares have risen almost 33 percent year-to-date, despite pulling back more than three percent from the recent 52-week high. Over the past six months, the stock has underperformed not only the broader markets, but Discover Financial Services (NYSE: DFS) as well.
David Einhorn of Greenlight Capital recently reduced his stake in this Falls Church, Virginia-based IT and professional services provider. Its market cap is more than $7 billion and the dividend yield is about 1.6 percent. The return on equity is more than 40 percent, and the price-to-earnings (P/E) ratio is less than that of competitor Accenture (NYSE: ACN).
Only three of the 14 analysts polled recommend buying shares, but only one analyst expects the stock to underperform. The analysts' mean price target is more than five percent higher than the current share price. But note that the consensus target is less than the recent 52-week high.
The share price jumped to that high following a strong quarterly report in August, but it has retreated more than six percent since then. Over the past six months, this stock has outperformed competitor Accenture, though it has underperformed the S&P 500 and the Nasdaq.
See also: CSC Acquires Big Data Firm Infochimps
This global financial services technology provider has partnered with Social Assurance to offer social media management services to the financial industry. Fiserv's market cap is more than $12 billion, but it does not offer a dividend. It has a long-term EPS growth forecast of about 12 percent.
Just eight of the 21 surveyed analysts recommend buying shares. The consensus recommendation has been to hold shares for at least three months. The mean price target indicates less than four percent potential upside, but that consensus price target would be a new multiyear high.
Shares have pulled back more than three percent since reaching the current 52-week high in mid-August. The share price is up more than 20 percent year-to-date. The stock's performance has been in line with that of peer Fidelity National Information Services (NYSE: FIS) over the past six months.
This leading IT products and services provider launched a comprehensive digital loan processing platform this week. The $200 billion market cap company offers a 2.1 percent dividend yield. The long-term EPS growth forecast is about 10 percent and the return on equity is more than 82 percent.
The consensus recommendation of the surveyed analysts is to hold shares, though more them recommend buying shares than expect them to underperform. Yet the analysts see plenty of headroom for shares, as their mean price target is about 16 percent higher than the current share price.
Note though that the share price recently fell to a 52-week low, and it is only up marginally since then. IBM has not only underperformed the broader markets over the past six months, but competitors such as Accenture and Microsoft (NASDAQ: MSFT) as well.
At the time of this writing, the author had no position in the mentioned equities.
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