The tech space is beaming with possibilities due to rapid technological integration across different sectors. Despite facing significant macroeconomic headwinds, the tech sector has steadily recovered. The Technology Select Sector SPDR Fund (XLK) has gained 40.5% year-to-date, outpacing the broader S&P 500’s 17.6% gain.
As a result, the time looks ripe to adopt a bullish stance on quality tech stocks: Uber Technologies, Inc. (UBER), Sanmina Corporation (SANM), and Celestica Inc. (CLS).
But before we delve into the fundamentals of the stocks listed above, let’s understand what prospects the tech industry holds.
The tech industry has flourished through the pandemic-driven disruption. The industry is now primed for growth due to rapid digital transformation across several sectors, such as healthcare, automotive, and real estate.
Nowadays, generative Artificial Intelligence (AI) is primarily seen as an exciting new avenue for the tech industry. According to McKinsey, generative AI has the potential to add the equivalent of $2.60 trillion to $4.40 trillion annually across 63 use cases.
Tech services have also emerged as a tech space frontrunner. Gartner predicts spending on IT services to reach $1.42 trillion in 2023 and $1.59 trillion in 2024, indicating respective year-over-year growths of 8.8% and 11.6%.
Furthermore, according to Statista, revenue in the global IT Services market is expected to show an annual growth rate of 7.4%, resulting in a market volume of $1.77 trillion by 2028.
With these favorable trends, let’s dive into the fundamentals of these Technology - Services stocks, starting with the third choice.
Stock #3: Uber Technologies, Inc. (UBER)
UBER operates technology applications globally, connecting consumers to various transportation options and services like ridesharing, carsharing, and micromobility. Its three segments include Mobility (ride-related services); Delivery (food, retail, and Uber Direct); and Freight (logistics network for shippers and carriers).
On August 11, UBER announced a collaboration with grocery chain Hy-Vee to offer on-demand and scheduled grocery delivery to customers across the Midwest. More than 260 grocery and liquor storefronts would be available to shop through Uber and Uber Eats due to the partnership, bolstering the company’s footprint in multiple Midwestern states.
On July 11, on-demand transit technology provider RideCo announced a partnership with UBER to offer transit agencies overflow (TNC) options that allow agencies in scaling and implementing alternative transportation options while minimizing disruption to their existing networks. This partnership is expected to benefit UBER.
For the fiscal second quarter that ended June 30, 2023, UBER’s gross bookings increased 15.6% from the year-ago value to $33.60 billion. The company’s revenue increased 14.3% year-over-year to $9.23 billion.
Net income attributable to UBER and net income per share attributable to common stockholders came in at $394 million and $0.18, registering substantial increases from the prior-year quarter. UBER’s adjusted EBITDA also registered an improvement of 151.6% year-over-year to $916 million.
UBER's trailing-12-month gross profit margin of 32.06% is 5.7% higher than the industry average of 30.33%. Likewise, the stock’s trailing-12-month asset turnover ratio of 1.08x is 32.4% higher than the 0.81x industry average.
Street expects UBER’s revenue to increase 14.5% year-over-year in the current quarter (ending September 2023) to $9.55 billion. For the fiscal year 2023, its revenue is projected to reach $37.55 billion, registering an increase of 17.8% from the prior-year period. Additionally, it topped the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 88.1% year-to-date and 22.8% over the past three months to close the last trading session at $46.51.
UBER’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Sentiment and a B for Growth and Quality. Out of 77 stocks in the Technology - Services industry, it is ranked #23. In addition to the POWR Ratings we’ve stated, we also have UBER’s ratings for Value, Momentum, and Stability. Get all UBER ratings here.
Stock #2: Sanmina Corporation (SANM)
SANM is a global provider of integrated manufacturing solutions, products, and services. It operates in two segments: Integrated Manufacturing Solutions; Components, Products and Services, serving various industries including industrial, medical, defense, automotive, communications, and more.
On August 8, Viking Enterprise Solutions, a SANM division, launched its ONYX Series, a high-density, network-attached unified storage solution to meet storage needs across sectors. The new offering should bolster the company’s revenue stream.
For the fiscal third quarter that ended on July 1, 2023, SANM’s net sales increased 9.1% year-over-year to $2.21 billion, while gross profit increased 13% from the year-ago value to $183.21 million. Its non-GAAP net income attributable to common shareholders came in at $92.16 million and $1.55 per share, up 19% and 23% year-over-year, respectively.
SANM’s trailing-12-month EBIT margin of 5.08% is 12.5% higher than the 4.51% industry average. In addition, the stock’s trailing-12-month ROCE and ROTC of 15.62% and 11.90% compare to the industry averages of 1.01% and 2.47%, respectively.
For the fiscal year ending September 2023, SANM’s EPS is estimated to increase 26.7% year-over-year to $6.32. Its revenue for the same period is forecasted to be $9.04 billion, registering a 14.6% increase year-over-year. The company has an impressive surprise earnings history, surpassing the consensus EPS estimates in all four trailing quarters.
Over the past year, the stock has gained 13.4% to close the last trading session at $55.51.
SANM’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system. It has a B grade for Value and Momentum.
Within the same industry, it is ranked #22. Click here to view SANM’s ratings for Growth, Stability, Sentiment, and Quality.
Stock #1: Celestica Inc. (CLS)
CLS is a worldwide supply chain solutions provider headquartered in Toronto, Canada. Its segments are Advanced Technology Solutions and Connectivity & Cloud Solutions, offering design, manufacturing, testing, and after-market support across industries like defense, industrial, HealthTech, and communication.
For the fiscal second quarter (ended June 30, 2023), CLS’ revenue increased 12.9% year-over-year to $1.94 billion. Its non-IFRS adjusted gross profit also increased 20.7% from year-ago value to $187.30 million.
Its non-IFRS operating earnings and non-IFRS adjusted net earnings came in at $106.40 million and $66.60 million, registering 28.7% and 22.9% increases year-over-year, respectively. The company’s non-IFRS adjusted earnings per share also increased 25% from the prior-year quarter to $0.55.
The company has raised its financial outlook for 2023. CLS expects a revenue of at least $7.85 billion, up from its previous outlook of at least $7.60 billion. It also raised its non-IFRS adjusted EPS outlook from a range of $2.00-$2.05 to $2.25.
CLS’ trailing-12-month EBIT margin of 4.98% is 10.3% higher than the industry average of 4.51%. In addition, the stock’s trailing-12-month ROCE and ROTC of 10.49% and 10.04% compare to the industry averages of 1.01% and 2.47%, respectively.
The consensus revenue estimate of $2 Billion for the third quarter (ending September 2023) represents a 3.7% increase year-over-year. The consensus EPS estimate of $0.60 for the current quarter indicates a 15.4% improvement year-over-year. The company has an impressive surprise history, surpassing the consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 99.9% year-to-date and 74.5% over the past three months to close the last trading session at $22.53.
CLS’s robust prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
CLS also has a B grade for Growth, Value, Momentum, and Sentiment. It is ranked #16 out of 77 stocks in the same industry. Click here to see the other ratings Of CLS for Stability and Quality.
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UBER shares were trading at $47.30 per share on Thursday afternoon, up $0.79 (+1.70%). Year-to-date, UBER has gained 91.27%, versus a 19.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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