9 U.S. IT Service Providers - The Good, The Bad, and The Hairy: Morningstar.com

Morningstar surveyed the U.S.-based information technology services firms landscape and sorted the key players into the good, the bad, and the hairy. 

The Good: Morningstar would willingly invest in these companies' shares if they traded at the proper discount to fair value estimate.

  1. Accenture (NYSE:ACN), Rating: 2 Stars
  2. Computer Sciences (NYSE:CSC), Rating: 5 Stars
  3. Electronic Data Systems (NYSE:EDS), Rating: 5 Stars

The Bad: Morningstar would avoid these companies, as they face the brunt of competitive threats.

  1. Keane (NYSE:KEA), Rating: 3 Stars
  2. Sapient (NASDAQ:SAPE), Rating: 1 Star
  3. Unisys (NYSE:UIS), Rating: 1 Star

The Hairy: Morningstar likes these firms, but for various reasons, cannot wholeheartedly recommend their shares.

  1. Affiliated Computer Services (NYSE:ACS), Rating: 4 Stars
  2. BearingPoint (NYSE:BE), Rating: 3 Stars
  3. Perot Systems (NYSE:PER), Rating: 4 Stars

The key problems confronting the U.S. firms, according to Morningstar: 

  • Indian firms have been disruptive to the entire industry, exerting pricing pressure through lower-priced contracts. 
  • Commercial clients are starting to use multiple vendors for shorter-term projects; by slicing up the contracts, they can send appropriate work to Indian firms. 
  • Most U.S. firms have set about developing offshore operations to create a global delivery network. 
  • The companies are not immune to more typical problems such as management turnover and regulatory filing delays.

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