Cognizant Keeps Foot On The Gas

1/5/2015


  Recent Price
$53
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
22
  Shares (millions)
612
  Long-Term Debt as % of Capital
0%
  52-Week Price Range
$54.89 - $41.51

Cognizant Technology Solutions ($53; CTSH) has delivered 50 straight quarters of double-digit sales growth. Operating cash flow has risen 12% or more in 15 of the past 17 quarters.

Recent growth looks particularly impressive against the backdrop of Cognizant's cohort, technology consulting and services providers in the S&P 1500 Index. Cognizant's sales and per-share profits both climbed 17% in the 12 months ended September. Growth has proved elusive for many companies in its peer group, which has averaged 4% lower per-share earnings while eking out 1% higher sales during that period.

Steady operating momentum contributes to Cognizant's outstanding Quadrix scores. It ranks in the top half of our research universe for all six categories — and four categories exceed 80. Both sector-specific ranks top 90. The stock is a Buy and a Long-Term Buy.

Business breakdown

Cognizant, up 6% for the year as of Dec. 30, trades near an all-time high. Revenue growth has been fairly balanced among Cognizant's key end markets in the first nine months of 2014, with financial services (42% of nine-month sales) up 16%, health care (25%) up 16%, and manufacturing, retail, and logistics (21%) up 13%.

However, operating profit margins have contracted in all three businesses, most notably in health care, which counts as clients drugmakers, biotechnology companies, medical-device makers, insurers, and pharmacy-benefit managers. Cognizant says the Affordable Care Act has caused its health-care clients to clamp down on discretionary spending. Hoping to revive the business, Cognizant has made a couple acquisitions in recent months. In November, it completed the biggest deal in its history by purchasing TriZetto for $2.7 billion in cash. TriZetto offers software and technology support for health-care companies. A month earlier, Cognizant acquired Cadient Group, a digital-marketing agency for the health-care sector.

The consulting and outsourcing environment may be starting to improve, considering that rival Accenture ($90; ACN) posted strong results for the November quarter. Accenture also warned that stiff currency headwinds would suppress its growth in coming quarters. However, Cognizant is fairly well sheltered from the effects of the strong dollar, with just 19% of revenue coming from Europe, compared to 76% from North America.

Conclusion

Rising analyst estimates target per-share profits of $0.64 in the December quarter, implying 21% growth on 12% higher sales. For 2015, Cognizant is expected to grow profits 16% on 21% revenue growth. Cognizant has topped consensus profit estimates in 10 straight quarters.

The company's Value score is middling at 55, though at 21 times trailing earnings, Cognizant trades 14% below its five-year average. The stock's price/sales, price/operating cash flow, price/book, and enterprise ratios also linger below their respective five-year averages.

An annual report for Cognizant Technology Solutions Corp. is available at 500 Frank W. Burr Blvd., Teaneck, NJ 07666; (201) 801-0233; www.cognizant.com.

COGNIZANT TECHNOLOGY SOLUTIONS
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '14
0.66
vs.
0.59
12%
50.62
-
41.51
21 - 17
Jun '14
0.66
vs.
0.58
16%
51.38
-
45.73
22 - 19
Mar '14
0.62
vs.
0.51
20%
54.00
-
44.96
24 - 20
Dec '13
0.58
vs.
0.50
21%
50.81
-
43.07
23 - 20
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2013
8.84
2.02
0.00
50.56
-
30.46
25 - 15
2012
7.35
1.72
0.00
39.00
-
26.96
23 - 16
2011
6.12
1.54
0.00
41.74
-
26.77
27 - 17
2010
4.59
1.26
0.00
37.40
-
21.04
30 - 17
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
96
82
55
98
91
97
76

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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