Despite uncertainties remaining at the forefront, the tech industry has made a surprising turnaround in the first half of this year. Therefore, let us probe into some buy-rated tech stocks, Zoom Video Communications, Inc. (ZM), Jabil Inc. (JBL), and Xerox Holdings Corporation (XRX), to see if they are worth investing in now.
U.S. tech stocks have enjoyed a stellar rally so far in 2023, fueled by the companies' strong earnings reports and the Artificial Intelligence (AI) craze that helped several tech companies stage a solid comeback. The broader technology sector looks attractive with the tech-heavy Nasdaq Composite index’s 29.4% year-to-date gain.
The recent job report has also instilled confidence among investors, as America’s jobs market is staggeringly strong, with 339,00 job additions in May. Amid alarming recession bells, this report brought relief as analysts reaffirmed that the economy is growing at a healthy pace.
On top of this, the tech industry remains well-poised for growth due to its indispensable role in modern society. Over the past two years, tech dependency in the United States has risen steadily, thanks to the adoption of new technologies such as cloud computing, AI, and data analytics.
Underscoring tech demand, Gartner, Inc. (IT) forecasted global IT spending to increase 5.5% year-over-year to reach $4.64 trillion in 2023. Moreover, for 2024, spending is projected to rise 8.6% year-over-year, with double-digit growth expected in devices, software, and IT services segments.
With these factors in mind, investors might consider buying fundamentally sound tech stocks ZM, JBL, and XRX, which look well-positioned to benefit from the industry tailwinds. These stocks are rated B (Buy) in our proprietary POWR Ratings system.
Zoom Video Communications, Inc. (ZM)
ZM provides a unified communications and collaboration platform that delivers fundamental changes to how people interact, connecting them through frictionless and secure meetings, phone, chat, content sharing, and more.
On June 5, ZM launched a new generative AI-powered Zoom IQ, available to users via free trials. ZM’s chief product officer, Smita Hashim, believes that these new capabilities enable the teams to further enhance their productivity for everyday tasks, freeing up more time for creative work and expanding collaboration.
On May 16, the company entered into a strategic partnership with Anthropic, an AI safety and research company working to build reliable, interpretable, and steerable AI systems. Under this, the integration of Anthropic’s AI assistant, Claude, with Zoom’s platform (which includes Team Chat, Meetings, Phone, Whiteboard, and Zoom IQ) is expected to expand ZM’s federated approach to AI.
In the same month, the Government of India granted Pan India Unified Licenses to ZM, thereby enabling the rollout of its industry-leading cloud PBX service, Zoom Phone, to Multi-National Corporations (MNCs) and businesses operating in the country.
For the fiscal 2024 first quarter that ended on April 30, 2023, ZM’s revenue increased 2.9% year-over-year to $1.11 billion. Its gross profit grew 3.6% from the year-ago value to $841.42 million, while its non-GAAP income from operations rose 5.7% from the prior-year quarter to $422.32 million.
The company’s non-GAAP net income came in at $353.25 million or $1.16 per share, representing 11.9% and 12.6% year-over-year increases, respectively.
Its revenue and EBITDA have increased at CAGRs of 74.8% and 44.3% over the past three years. Also, its total assets have increased at a 60.4% CAGR over the same period.
Analysts expect ZM’s EPS and revenue for the fiscal second quarter (ending July 2023) to increase marginally year-over-year to $1.06 and $1.11 billion, respectively. The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
The stock’s trailing-12-month levered FCF margin of 35.09% is significantly higher than the 7.01% industry average. Also, its trailing 12-month ROTA of 0.06% compares to the industry average of 0.02%.
The stock has gained 4.2% year-to-date to close the last trading session at $70.56.
ZM’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value and Quality. Among the 81 stocks in the Technology - Services industry, it is ranked #22. To see the other ratings of ZM for Growth, Momentum, Stability, and Sentiment, click here.
Jabil Inc. (JBL)
JBL provides manufacturing services and solutions through two segments: Electronics Manufacturing Services; and Diversified Manufacturing Services. It offers electronics design, production, and product management services; electronic circuit design services, firmware development, and rapid prototyping services; and designs plastic and metal enclosures.
On June 2, the company paid a quarterly dividend of $0.08 per share on the common stock to its shareholders. JBL’s four-year average dividend yield is 0.70%, and its forward annual dividend of $0.32 translates to a 0.30% yield on current prices.
On April 26, JBL introduced PLA 3110P, a novel powder based on a renewably-sourced biomaterial that offers a bio-based alternative to petrochemical-based powders, such as Nylon-12 (PA 12). Developed in collaboration with NatureWorks, the new engineered material is expected to advance material sustainability initiatives while delivering the first-ever PLA-based powder optimized for powder-bed fusion technologies.
In the fiscal third quarter that ended May 31, 2023, JBL’s total revenues increased 1.8% year-over-year to $8.47 billion. The company’s non-GAAP operating income grew 14.7% from the prior-year quarter to $404 million, while its non-GAAP core earnings increased 9.3% from the year-ago value to $269 million. Also, its adjusted EPS came in at $1.99, representing an increase of 15.7% year-over-year.
Its net income and EPS have improved at CAGRs of 193.1% and 203.4% over the past three years, respectively. Also, its EBIT has increased at a 31.4% CAGR over the same period.
In addition, the stock’s trailing-12-month ROCE and ROTA of 38.41% and 5.03% are significantly higher than the industry averages of 0.50% and 0.02%, respectively. Also, its trailing-12-month net income margin of 2.77% is 40.5% higher than the industry average of 1.97%.
The consensus EPS estimate of $8.51 for the fiscal year 2023 (ending August 31) represents an 11.2% improvement year-over-year. The consensus revenue estimate of $34.79 billion for the current year indicates a 3.9% increase from the prior-year period. The company has a promising earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 97.5% to close the last trading session at $105.89.
JBL’s strong prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Sentiment and Quality. In the same industry, it is ranked 21 out of 81 stocks. To see the ratings of JBL for Growth, Value, and Stability, click here.
Xerox Holdings Corporation (XRX)
XRX is a workplace technology company engaged in the development and sale of document management systems and solutions. Its products and services include desktop monochrome, and color and multifunction printers; digital printing presses and light production devices and solutions; and digital services.
On June 13, XRX was named a leader in Quocirca’s 2023 Print Security Market Landscape Report. Quocirca commended the company for its deepening capabilities across device security, fleet management, and content security. Also noted were advancements made in certificate management, firmware management, vulnerability management, security monitoring, and automated remediation.
On May 25, the company’s board of directors declared a quarterly dividend of $0.25 per share of its common stock for distribution on July 31, 2023. In addition, it also approved a quarterly dividend on the outstanding XRX Series A Convertible Perpetual Preferred Stock of $20.00 per share, payable to its shareholders on July 3, 2023.
It pays a $1 per share dividend annually, which translates to a 6.91% yield on the current price. Its four-year average dividend yield is 5.32%. The company’s dividend payouts have grown at a 4.2% CAGR over the past five years.
On April 11, XRX launched new and upgraded solutions, namely Xerox Easy Assist App and CareAR® Instruct App, to improve productivity and security for hybrid workers. These applications include innovative technologies tailored for organizations to advance user experience, build a highly productive workplace choice, and enhance work security.
XRX’s total revenues increased 2.8% year-over-year to $1.72 billion for the fiscal first quarter that ended March 31, 2023. The company’s adjusted operating income of $118 million improved significantly from an operating loss of $3 million in the same period last year.
In addition, its adjusted net income and EPS amounted to $82 million and $0.49 compared to a net loss and loss per share of $14 million and $0.12, respectively. Also, its free cash flow increased 40% from the year-ago value to $70 million.
Street expects XRX’s EPS for the second quarter (ending June 30, 2023) to increase 134.6% year-over-year to $0.31. Its revenue for the ongoing quarter is expected to grow marginally year-over-year to $1.76 billion.
The stock’s trailing-12-month EBIT margin and ROTC of 4.74% and 2.63% are 9.9% and 57.8% higher than the industry averages of 4.31% and 1.66%, respectively.
XRX’s shares have lost marginally year-to-date to close the last trading session at $14.48.
It’s no surprise that XRX has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Growth and a B for Value and Quality. Within the Technology - Services industry, it is ranked #15.
Beyond what we stated above, we also have XRX’s ratings for Momentum, Stability, and Sentiment. Get all XRX ratings here.
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ZM shares were trading at $67.59 per share on Wednesday afternoon, down $2.97 (-4.21%). Year-to-date, ZM has declined -0.22%, versus a 14.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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