Needham & Company on IT Services/BPO: 2011 Review & 2012 Outlook; Top Picks MCRS & FNGN
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Up: 8 | Down: 5 | New: 26
Rating Summary:
10 Buy, 4 Hold, 0 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Needham & Company on IT Services/BPO: 2011 Review & 2012 Outlook
Analyst Mayank Tandon, said, "Our group of IT services and financial technology stocks turned in mixed performances over 2011, with strong performance through the first six months of the year but then tailing off in the second half on concerns over the sovereign debt problems in the Euro Zone and renewed fears of a recession in the U.S. The IT services group took the hardest hit, with only EXL Service (Nasdaq: EXLS)(Buy) outperforming the Nasdaq Composite. The larger-cap names were among the weakest performers, with Infosys (Nasdaq: INFY)(Buy) down 35% and Cognizant (Nasdaq: CTSH)(Strong Buy) down 13%. The financial technology group performed relatively well, with all three of the names under our coverage comfortably outperforming the Nasdaq Composite. Financial Engines (Nasdaq: FNGN)(Buy) was the best performing stock, up 17%. While 2011 turned out to be a challenging year for our IT services stocks, we believe investor concerns of a demand slowdown are overdone and, with valuations hovering close to the bottom end of the historical ranges for the sector, we believe the risk is skewed to the upside. Based on the persistent budget pressures facing CIOs, we believe their focus will be on doing “more with less” in 2012 and that in turn should lead to a greater focus on leveraging low-cost offshore resources and increasing their spend on application maintenance projects. While discretionary spend may slow, we believe incremental growth opportunities from regulatory changes in healthcare and financial services could more than offset the slowdown in “innovation” projects and drive earnings outperformance for the IT services sector. Cognizant and iGate-Patni (Nasdaq: IGTE)(Buy) are our top picks. We believe our financial technology coverage group offers investors a nice balance of offense and defense with a large base of recurring revenue, leverage to powerful secular trends, and sustainable margin expansion potential. Our top picks are Micros (Nasdaq: MCRS)(Buy) and Financial Engines."
Analyst Mayank Tandon, said, "Our group of IT services and financial technology stocks turned in mixed performances over 2011, with strong performance through the first six months of the year but then tailing off in the second half on concerns over the sovereign debt problems in the Euro Zone and renewed fears of a recession in the U.S. The IT services group took the hardest hit, with only EXL Service (Nasdaq: EXLS)(Buy) outperforming the Nasdaq Composite. The larger-cap names were among the weakest performers, with Infosys (Nasdaq: INFY)(Buy) down 35% and Cognizant (Nasdaq: CTSH)(Strong Buy) down 13%. The financial technology group performed relatively well, with all three of the names under our coverage comfortably outperforming the Nasdaq Composite. Financial Engines (Nasdaq: FNGN)(Buy) was the best performing stock, up 17%. While 2011 turned out to be a challenging year for our IT services stocks, we believe investor concerns of a demand slowdown are overdone and, with valuations hovering close to the bottom end of the historical ranges for the sector, we believe the risk is skewed to the upside. Based on the persistent budget pressures facing CIOs, we believe their focus will be on doing “more with less” in 2012 and that in turn should lead to a greater focus on leveraging low-cost offshore resources and increasing their spend on application maintenance projects. While discretionary spend may slow, we believe incremental growth opportunities from regulatory changes in healthcare and financial services could more than offset the slowdown in “innovation” projects and drive earnings outperformance for the IT services sector. Cognizant and iGate-Patni (Nasdaq: IGTE)(Buy) are our top picks. We believe our financial technology coverage group offers investors a nice balance of offense and defense with a large base of recurring revenue, leverage to powerful secular trends, and sustainable margin expansion potential. Our top picks are Micros (Nasdaq: MCRS)(Buy) and Financial Engines."
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