With the market being propelled upward due to private equity and corporate acquisitions, investors should not stay on the sidelines. Rather, they should target private equity's next frontier -- IT services. Of the companies in this sector, Unisys Corp. (NYSE: UIS), Perot Systems Corp. (NYSE: PER) and Ingram Micro, Inc. (NYSE: IM) may be worth examining.
A few months ago, I suggested several sectors and companies that private equity could target next. On Friday, TheStreet.com reiterated one of those sectors -- IT services. Here's how much seven such companies have gone up or down since my March 29th post along with their market capitalizations ranked by their Price/Earnings to Earnings Growth (PEG) ratios:
- UIS declined 2% from $8.48 (market cap: $2.9 billion). PEG 0.3 based on a forward P/E of 42.1 and 149.5% earnings growth to $0.49 in 2008.
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PER declined 8% from $17.85 (market cap: $9.9 billion). PEG 1.1 based on a current P/E of 25 and 23.62% earnings growth to $1.05 in 2008.
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IM increased 4% from $19.27 (market cap: $3.4 billion). PEG 1.2 based on a current P/E of 14.3 and 11.5% earnings growth to $1.87 in 2008.
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Affiliated Computer Services, Inc. (NYSE: ACS) increased 0.4% from $59.01 (market cap: $5.9 billion). PEG 1.2 based on a current P/E of 21 and 18.3% earnings growth to $3.73 in 2008.
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Accenture Ltd. (NYSE: ACN) increased 3% from $38.68 (market cap: $30.9 billion). PEG 1.5 based on a current P/E of 19.3 and 13.2% earnings growth to $2.18 in 2008.
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Electronic Data Systems Corp. (NYSE: EDS) increased 1% from $27.88 (market cap: $14.4 billion). PEG 1.8 based on a current P/E of 24.2 and 13.8% earnings growth to $1.79 in 2008.
- Computer Sciences Corp. (NYSE: CSC) increased 10% from $52.31 (market cap: $9.9 billion). PEG 2.6 based on a current P/E of 29.1 and 11.2% earnings growth to $4.07 in 2008
Regardless of whether the top three get bought out by private equity firms, their shares may be worth purchasing. Since rumors of a buyout are rife, I'd look at CSC as well.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.
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