Technological changes are occurring at an ever-accelerating pace. As any savvy business knows, the need to adapt and integrate new working models is essential for long-term success. Digital transformation services TAM (total addressable market) is expected to grow by 17% each year between 2019 to 2022, from $390 billion to $622 billion. The scene is set, then, for well positioned companies to get a piece of the rapidly expanding industry.
In a recent research report, Wedbush analyst Moshe Katri outlined his thoughts on the IT industry’s future, in addition to reevaluating the firm’s investment thesis on some of the sector’s important players.
“Digital innovation will continue to expand,” Katri said, “from 2018 to 2023, 500 million new logical apps will be created, equal to the number built over the past 40 years, driven by new tools/platforms, more developers, agile methods, and code reuse.”
So, we took the data at hand, delved into TipRanks.com to get the score on 2 IT stocks the Wedbush analyst thinks investors should own in 2020. Let’s have a look.
Globant SA (GLOB)
As its name implies, this IT solutions provider is global in its outreach. Founded in Buenos Aires and currently headquartered in Luxemburg, Globant has offices all over the world, from the US to Colombia to UK to Belarus, amongst others.
Globant has some big-league clients among its roster, including Disney, American Express, and LinkedIn, and since its IPO in 2014, has exhibited double-digit growth every year. 2019, alone, has seen the digital consulting organization add 84% to its share price.
The company’s goal of creating meaningful relationships between brands and consumers is manifested in its work, which includes building systems from the ground up, creating websites and apps, and updating old platforms for its clients. Globant has more than 7,800 IT pros across the globe, organized into bespoke units offering solutions in specific areas of expertise.
Katri thinks “funding for digital transformation projects” are in the third year of a five-year spending cycle and will likely continue and result in “strong 20%+ revenue growth for a host of vendors in the space.” The 5-star analyst thinks “barring a global macro-economic shock/event,” Globant is among those standing to benefit. “A combination of a strong pipeline, expected recovery at three top five clients, a firm revenue baseline in Q4/CY19 as well as ongoing work in payments position the company for growth reacceleration in CY2020,” said Katri.
Therefore, the 5-star analyst reiterated an Outperform rating on Globant, alongside a price target of $115. This sets the scene for gains of 11% over the next year. (To watch Katri’s track record, click here)
With 3 Buys and 1 Hold rating from analysts tracked by TipRanks over the last 3 months, Globant ranks as a Strong Buy. The Street’s similar outlook to Katri’s extends to the price target, too. At $114, it comes in just below the Wedbush analyst’s target, indicating 11% upside potential. (See Globant stock analysis on TipRanks)
WNS Limited (WNS)
WNS has been turning heads on the Street recently, as the global BPM (business process management) service provider was recently acknowledged as a market leader in insurance services by leading insights company, ISG (information services group). The BPO (business process outsourcing) report notes the company’s leading position in the insurance value chain and range of digital offerings, including customer digital applications, broker applications, and self-service portals.
The recognition caps a strong year for the outsourcing leader, in which it has added 52% to its share price and has consistently beaten EPS estimates by wide margins.
Heading into the new year, management has noted the company’s success “cross-selling services into new acquired client base”, as well as the sector’s historic resilience in terms of demand during periods of economic slowdown.
Katri agrees, and rates WNS as his current “favorite small cap BPO name to own” owing to a combination of a “robust pipeline, strong visibility, impressive win rates and a defensive/resilient model with the possibility of further acceleration in C/C (cash/credit) top line growth (FY20).”
The analyst noted, “Fundamentally, WNS continues to benefit from an under-penetrated end market (20-30% for FS, Insurance and Travel verticals), an ongoing shift into a transaction-based model, as well as from growing interest in bundling BPO solutions with analytics/AI as economic uncertainty/disruption propel companies to increasingly focus on cost takeout strategies.”
To this end, Katri reiterated an Outperform rating on WNS, and increased his price target from $65 to $70, indicating possible upside of 11% in the coming year.
Looks like the Street is on the same page as the Wedbush analyst. WNS currently has a Strong Buy consensus rating, breaking down into 4 Buys and 1 Hold. An average price target of $73.40 implies gains of 16% could be in the cards for the leading business services provider. (See WNS stock analysis on TipRanks)