Cognizant Raised to Buy Rating at Citi

• Morgan Stanley upgraded NASDAQ:CTSH to "Overweight" with a stock price of $86.20.
• Cognizant reported non-GAAP earnings of $1.21 per share, surpassing estimates and indicating a positive profitability trend.
• The company's revenues reached $5.08 billion, with a year-over-year growth of 6.8%, driven by demand for digital transformation services and AI integration.

Cognizant Technology Solutions Corporation (NASDAQ:CTSH) is a leading provider of IT services, including digital transformation, AI integration, and sector-specific solutions. The company competes with other tech giants like Accenture and Infosys. On February 10, 2025, Morgan Stanley upgraded CTSH to "Overweight," with the stock priced at $86.20 at the time of the announcement.

Cognizant's recent financial performance has been strong. In the fourth quarter of 2024, the company reported non-GAAP earnings of $1.21 per share, surpassing the Zacks Consensus Estimate by 8.04% and marking a 2.5% increase from the previous year. This indicates a positive trend in the company's profitability.

The company's revenues for the same quarter reached $5.08 billion, exceeding expectations by 0.49% and showing a 6.8% year-over-year growth. This growth was driven by strong demand for digital transformation services and AI integration. Acquisitions also played a significant role, contributing 450 basis points to the top-line growth.

Cognizant's bookings over the trailing 12 months rose by 3% year over year to $27.1 billion, with a book-to-bill ratio of approximately 1.4 times. This ratio indicates that the company is securing more business than it is delivering, which is a positive sign for future revenue. The company secured 10 large deals during the quarter, an increase from seven in the previous year, totaling 29 large deals for the year.

Currently, CTSH is trading at $86.20, reflecting a decrease of 1.02% or $0.89. The stock has traded between a low of $85.80 and a high of $87.35 today. Over the past year, CTSH has reached a high of $87.61 and a low of $63.79. The company has a market capitalization of approximately $42.74 billion, with a trading volume of 3,837,233 shares on the NASDAQ exchange.

James Faucette from Morgan Stanley has recently set a price target of $65 for Cognizant (CTSH), suggesting a potential downside from its current trading price of $69.26. This analysis, as reported by StreetInsider, points towards a cautious outlook on Cognizant's financial future, citing "Discretionary Spending Still Challenged; Bookings Strength Intact" as a key factor. Despite this cautious stance, Cognizant's strategic moves in the retail sector and its partnerships with Shopify and Google Cloud indicate a robust plan to counteract these challenges and leverage growth opportunities.

Cognizant's Strategic Partnerships

Cognizant's partnership with Shopify and Google Cloud is a strategic endeavor to modernize and transform the digital landscape for global retailers and brands. By combining Shopify's commerce platform, Google Cloud's infrastructure, and Cognizant's expertise in retail technology, this alliance aims to enhance customer experiences and ensure global scalability. This initiative is particularly significant as it focuses on adopting new technologies like generative AI, which are essential for meeting the evolving demands of consumers for real-time interactions and personalized shopping experiences. This move not only demonstrates Cognizant's commitment to innovation but also positions the company to capitalize on the growing trend of digital transformation in the retail industry.

Growth and Partnership Network

Cognizant's growth is further supported by its expanding client base and a strong partnership network. The company has reported a robust pipeline of business renewals and new opportunities, including securing several deals worth over $100 million each in the fourth quarter of 2023. This large deal momentum is a testament to Cognizant's competitive edge and its ability to attract significant business engagements, which are crucial for sustaining growth and profitability.

Extension of Partnership with LexisNexis

The extension of Cognizant's partnership with LexisNexis Legal & Professional underscores the company's role as a trusted provider of advanced cloud and digital engineering services. This collaboration aims to transform Lexis Nexis' legal research platform, Lexis+, by enhancing search capabilities and elevating the customer experience. Such strategic partnerships not only diversify Cognizant's service offerings but also reinforce its position in the market as a leader in delivering innovative digital solutions.

Financial Health and Market Position

Despite the current trading price of $69.26 and a recent decrease of $1.31, indicating a decline of approximately 1.86%, Cognizant's strategic initiatives and partnerships highlight the company's proactive approach to navigating market challenges and seizing growth opportunities. With a market capitalization of around $34.48 billion and a trading volume of 2,760,678 shares on the NASDAQ exchange, Cognizant's financial health and strategic direction suggest a resilient outlook, even in the face of potential market downturns as indicated by Morgan Stanley's analysis.

Citi analysts upgraded Cognizant (NASDAQ:CTSH) to Buy rating from Neutral and raised the price target to $80 from $72. The analysts pointed out that Cognizant has made significant progress on various fronts, particularly under the leadership of new CEO Ravi Kumar. This positive change has improved Cognizant's reputation with both clients and employees, sparking steady and incremental investor interest in what they call a "idiosyncratic, self-help story."

The analysts also highlighted Cognizant's efforts to narrow the performance gap on both the demand and supply sides of the business. They cited strong year-to-date bookings and improved client and employee retention as early indicators that Cognizant can compete effectively with its main competitors as the industry recovers.

Cognizant (NASDAQ:CTSH) shares surged more than 6% yesterday after the company posted its Q1 earnings results, with EPS of $1.11 beating the Street estimate of $1.04. Revenue came in at $4.8 billion, better than the Street estimate of $4.73 billion.

According to the analysts at RBC Capital, the beat and bookings growth appear to be early signs that management’s focus on (1) the company becoming an employer of choice (attrition improved to 23% vs. 26% last quarter and 30% last year), (2) accelerating large deals, and (3) enhancing operational excellence are beginning to bear fruit.

For Q2/23, management anticipates revenue in the range of $4.83-4.88 billion, compared to the Street estimate of $4.86 billion. For the full year, EPS is seen at $4.11-$4.34, compared to the Street estimate of $4.43. Revenue is seen at $19.2-19.6 billion, compared to the Street estimate of $19.56 billion.

RBC Capital analysts shared their outlook on Cognizant Technology Solutions Corporation’s (NASDAQ:CTSH) upcoming Q2 results, scheduled to be reported on July 27.

The analysts expect the company to report generally in-line results, with margins and potential FX-related revenue guidance reductions being the primary investor focus. The analysts estimate $4.91 billion (vs. Street’s $4.92 billion) in revenues and $1.10 (vs. Street’s $1.10) in EPS.

The analysts mentioned several focus areas in Q2, including (1) the digital demand backdrop, (2) attrition & other labor costs, (3) bookings growth and (4) FX.

Deutsche Bank analysts released their outlook on Cognizant Technology Solutions Corporation (NASDAQ:CTSH), ahead of the company’s Q1 earnings results, which will be announced on May 4.

The analysts expect the company to post Q1 revenue of $4.7 billion (up 9.8% year-over-year) and EPS of $1.05. The company is expected to benefit from demand tailwinds for digital services where it continues to invest and get a boost from strong bookings translating to potentially driving outperformance.

Although the analysts expect higher attrition and wage inflation to weigh on margins in the near term, they believe the company has the ability to offset this pressure through a continued mix shift to higher-margin digital offerings along with operational leverage. As a result, the analysts see a potential for improving revenue growth and think the company can move towards the top end of the current revenue growth guidance range of around 8-11% for the full 2022-year.

Overall, the analysts believe the company has the ability to grow double digits revenue and continue expanding adjusted operating margins above 16% over the mid-term.