IT Services providers have been experiencing low demand amid macroeconomic uncertainty, with not many stocks in the sector offering near-term upside to consensus figures. Against this backdrop, analysts at Guggenheim shared in a note this week a list of the Best IT Services stocks to own for 2024.
They noted that the soft near-term demand is a result of “deprioritized discretionary spend,” adding that the reduced spending is evident “particularly across transformation-oriented discretionary agendas as enterprises shifted budget priorities toward outsourcing-reliant cost optimization.”
Despite this, Guggenheim remains constructive on the medium-term opportunities, expecting cyclical headwinds to clear and AI-driven technology to start opening up new areas of growth.
“We believe we are in the early innings of an AI-driven technology cycle. IT Services providers are often “tip of spear” for innovation, as those indexed to consulting capabilities help plan, roadmap, develop, and implement new technology for enterprise customers,” they said.
The analysts also expect acquisitions to be key during this phase, and are most optimistic about stocks offering growth upside and exposure to discretionary spend.
The best IT Services stocks to own according to Guggenheim are Accenture (NYSE:ACN), Andava Ltd. (DAVA), EPAM Systems (EPAM) and Globant (GLOB). Each of these has a Buy rating at the firm, while DAVA is additionally a ‘Best Idea.’
“[W]e expect these companies to better capture secularly-driven demand recovery. Each is also adept at systematic tuck-in acquisitions, continuously pivoting capability sets to meet demand,” said the analysts.
Here’s why these stocks are Buys at Guggenheim.
Accenture (price target $425): “We see ACN as among the best-positioned to capture secular demand themes given its end-to-end service offerings, investments ahead of demand trends, and durable capital allocation framework balancing acquisitions and shareholder return.”
Andava (price target $60): The stock “presents a buying opportunity in a high-quality digital pure-play well-positioned to benefit from return of discretionary spend.”
EPAM (price target $350): “Despite near-term uncertainty, we believe EPAM is among the best-positioned to benefit from demand recovery given its focus on digital enablement.”
Globant (price target $250): “A Latin American-based digital pure-play showing resilience amidst macroeconomic uncertainty, GLOB has demonstrated the strengths and differentiation of its customer relationships and Studio model, which we believe will continue to underpin double-digit growth in the medium term.”