Unisys Hits A 52-Week High On Core Focus & Restructuring

Shares of Unisys Corporation (NYSE:UIS) hit a 52-week high of $13.93 on Nov 17, closing a notch lower at $13.85, reflecting a healthy year-to-date return of 25.3%. Despite the strong price appreciation, this Zacks Rank #3 (Hold) stock has the fundamentals to scale higher.

Growth Drivers

The information technology industry is presently undergoing a transition, forging new disruptive trends in cloud mobility, big data, social computing and increasing awareness of cyber security. In order to capitalize on the trend, Unisys is rationalizing its services and solution portfolio by shifting its offerings to cloud-based and software-as-a-service delivery models. The company is focusing on business opportunities in fewer, more profitable sectors in the IT marketplace.

To drive growth, Unisys is diverting its resources and investments toward four targeted, high-potential market areas, including security (IT security and physical security); data center transformation and outsourcing services; end-user outsourcing and support services; and applications modernization and outsourcing services. As it seeks to keep up with the evolution in the IT industry, the company’s services unit looks to advantage from the growth prospects in higher-margin services. The company has also secured quite a few contracts in these segments that should propel top-line growth in the coming quarters.

Unisys has also been restructuring its business to improve profitability by selling non-core businesses and revamping its sales strategy, while investing in a few higher-growth areas such as outsourcing. We expect the company to continue with its cost-control initiatives and put greater effort toward sales growth, as it strives to overcome operational weaknesses.

In addition, Unisys is focusing to build specialized industry skills and resources required to win industry-specific project opportunities. The company is investing heavily on developing a team dedicated to pursuing growth opportunities for application-managed services for existing and new clients. These application-based managed services capability will allow Unisys to more effectively pursue long-term application outsourcing opportunities, as well as associated application modernization and implementation project work.

These strategic steps probably boosted investor confidence, catapulting the shares to a new 52-week high.

Stocks to Consider

Better-ranked stocks in the industry include Amdocs Limited (NASDAQ:DOX) , Barracuda Networks, Inc. (NYSE:CUDA) and CDK Global, Inc. (NASDAQ:CDK) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Amdocs is currently trading at a forward P/E of 16.0x and has beaten estimates twice in the trailing four quarters, the average earnings surprise being 2.8%.

Barracuda Networks has a long-term earnings growth expectation of 21.1% and is currently trading at a forward P/E of 85.7x.

CDK Global has a long-term earnings growth expectation of 12.5% and is currently trading at a forward P/E of 24.5x.

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