The technology industry is growing significantly due to the increased demand for digital transformation, cloud computing, and emerging technologies such as artificial intelligence etc. In light of this, I think it could be wise to keep an eye on tech stocks, Dell Technologies Inc. (DELL), Leidos Holdings, Inc. (LDOS), and Knowles Corporation (KN).
The solid economic growth in the United States has been a key driver of the growth in the IT Services market. The country has a large and diverse economy, which has created a wide range of opportunities for IT services providers. Additionally, the US has a highly developed infrastructure, including a robust telecommunications network and a sophisticated banking system, which has helped to create a favorable environment for the IT Services industry.
Revenue in the IT services market is expected to grow at a CAGR of 6.2% until 2028.
In addition, according to projections by Gartner, global IT spending is anticipated to reach $5.10 trillion this year, marking an 8% increase from the preceding year. While the impact of generative AI on IT spending is presently limited, substantial investments in AI are playing a crucial role in the overall growth of IT expenditures.
Furthermore, as companies and organizations increasingly adopt digital transformation strategies, they require robust and scalable hardware infrastructure to handle the growing volumes of data, ensure seamless connectivity, and support their software applications. Therefore, the IT hardware market is projected to grow at a CAGR of 7.9% until 2029.
With these favorable trends in mind, let's delve into the fundamentals of the three best technology stock picks mentioned above.
Dell Technologies Inc. (DELL)
DELL designs, develops, manufactures, markets, sells, and supports various comprehensive and integrated solutions, products, and services in the Americas, Europe, the Middle East, Asia, and internationally. The company operates through two segments, Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG).
On December 19, DELL announced pricing terms for its cash tender offers, expecting to accept $350 million in 3.450% Senior Notes due 2051 and $150 million in 8.350% Senior Notes due 2046.
On December 14, DELL revealed that CoreWeave, a specialized cloud provider for large-scale NVIDIA GPU-accelerated workloads, had acquired thousands of Dell PowerEdge servers to enhance access to computational power for organizations focusing on AI and generative AI (GenAI) innovation.
The collaboration aims to meet the growing demand for high-performance cloud solutions driven by AI, offering scalable computing for large models.
DELL’s trailing-12-month net income margin of 2.92% is 24% higher than the industry average of 2.36%, while its trailing-12-month EBIT margin of 5.39% is 9.5% higher than the industry average of 4.92%.
DELL’s total net revenue for the fiscal third quarter ended November 3, 2023, came in at $22.25 billion, including product revenue of $16.23 billion and service revenue of $6.02 billion. Its non-GAAP operating expenses declined 5% year-over-year to $3.31 billion. The company’s non-GAAP net income stood at $1.39 billion and $1.88 per share.
Analysts expect DELL’s revenue and EPS to be $22.15 billion and $1.72 in the fiscal fourth quarter ending January 2024. Moreover, the company beat the consensus EPS estimates in each of the trailing four quarters, which is remarkable.
Shares of DELL increased 83.7% over the past nine months to close the last trading session at $79.52.
DELL’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Value, Sentiment, and Momentum. Within the A-rated Technology - Hardware industry, it is ranked #9 out of 36 stocks.
Beyond what is stated above, we’ve also rated DELL for Quality and Stability. Get all DELL ratings here.
Leidos Holdings, Inc. (LDOS)
LDOS together with its subsidiaries, provides services and solutions in the defense, intelligence, civil, and health markets in the United States and internationally. It operates through three segments: Defense Solutions; Civil; and Health.
On January 4, 2024, LDOS had announced the successful deployment of a new Flight Service Voice Communications System (FSVCS) using Voice over Internet Protocol (VoIP) technology. The system, developed in coordination with Rohde & Schwarz USA, delivers the first ED-137C compliant system into the U.S. National Airspace.
On December 21, 2023, LDOS announced the delivery of the first Enduring Shield launchers. The Enduring Shield program supports the U.S. Army's Indirect Fire Protection Capability Increment 2 (IFPC Inc 2) program, which is a critical part of the Department of Defense's layered defense strategy.
LDOS’s trailing-12-month ROTC and asset turnover ratio of 8.10% and 1.17x are 14.2% and 46% higher than the respective industry averages of 7.09% and 0.80x.
LDOS’s revenues came in at $3.92 billion in the fiscal third quarter that ended September 29, 2023, up 8.7% year-over-year. Its adjusted EBITDA came to $451 million, up 21.2% year-over-year. The company’s non-GAAP net income grew 28% from the year-ago value to $283 million, while its non-GAAP EPS increased 27.7% year-over-year to $2.03.
Street expects LDOS’s revenue for the fiscal fourth quarter ended December 2023 to increase 3% year-over-year to $3.81 billion. Moreover, it has surpassed the consensus revenue estimates in each of the trailing four quarters.
Over the past six months, the stock has surged 21.1% to close the last trading session at $108.74.
It’s no surprise that LDOS has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Sentiment and a B in Momentum, Stability, and Growth. Within the Technology - Services industry, it is ranked #9 out of 77 stocks.
In addition to the POWR Ratings stated above, one can access LDOS's ratings for Quality and Value here.
Knowles Corporation (KN)
KN offers micro-acoustic microphones and balanced armature speakers, audio solutions, high performance capacitors, and radio frequency products for the consumer electronics, medtech, defense, electric vehicle, industrial, and communications markets. It operates through three segments: Precision Devices; Medtech & Specialty Audio; and Consumer MEMS Microphones.
KN’s trailing-12-month EBIT margin of 7.96% is 61.8% higher than the industry average of 4.92%. The stock’s trailing-12-month levered FCF margin of 13.16% is 52.2% higher than the industry average of 8.65%.
In the fiscal third quarter, which ended on September 30, 2023, KN’s revenues amounted to $175.10 million and its non-GAAP gross profit grew 93.8% from the prior-year quarter to $78.10 million. Moreover, the company’s non-GAAP net earnings and non-GAAP EPS amounted to $29.30 million and $0.31, up 25.8% and 24% from the prior-year quarter, respectively.
The consensus revenue estimate of $215.23 million for the fiscal fourth quarter ended December 2023 reflects a 9.2% year-over-year improvement. Moreover, it has surpassed the consensus EPS estimates in each of the trailing four quarters.
KN’s shares have surged 19.4% over the past three months to close the last trading session at $16.71.
KN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
The stock has a B grade in Growth and Quality. It is ranked #7 out of 41 stocks in the B-rated Technology - Electronics industry.
Click here to see the other ratings of KN (Momentum, Value, Stability, and Sentiment).
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DELL shares were trading at $77.21 per share on Wednesday afternoon, down $2.31 (-2.90%). Year-to-date, DELL has gained 0.93%, versus a -0.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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