Cognizant Technology Solutions Corporation (CTSH, Financial) is a leading provider of information technology (IT), consulting and business process services. Its core competencies include: Business, Process, Operations and IT Consulting; Application Development and Systems Integration; Enterprise Information Management; Application Testing, Application Maintenance, IT Infrastructure Services; and Business Process Services. Its business is organized and managed primarily around its four industry-oriented business segments: Financial Services; Healthcare; Manufacturing; Retail and Logistics; and Other, which include Communications, Information, Media and Entertainment, and High Technology.
Over the last five years the company’s revenues have increased by 123%. In the same period its EPS has grown by 94%. The company is doing good job in terms of passing on the benefits of improved performance to its shareholders. The company increased its share repurchase authorization to $2 billion last year and it has repurchased approximately 35.6 million shares for a total cost of approximately $1.2 billion, till date.
Going forward, analysts expect the company to post an EPS of in $2.97 FY2015 and $3.44 in FY2016. Its topline is expected to grow by 20% in current year and 15% next year.
Recently, Cognizant posted strong first quarter 2015 results. Its revenue increased 6.2% sequentially and 20.2% on year-over-year basis. The company’s operating margin for the quarter was 19.8%. The company has also increased full year revenue guidance to 19.3% and EPS guidance by $0.02 to at least $2.93.
In addition to strong organic growth, Cognizant’s results are also expected to benefit from strategic acquisitions. Last year, Cognizant bought TriZetto for $2.7 billion to expand into the health care software industry. The company expects to generate $1.5 billion of revenue synergy opportunities over the next five years from this acquisition. The integration of TriZetto is on track, and the combined offerings of Cognizant and TriZetto are resonating with clients. In the first quarter, the company gained synergy deals with a total contract value of ~$200 million. Cognizant is moving aggressively to increase TriZetto staffing and has added 500 consultants who are already deployed, or trained and ready to deploy to assist in driving revenue synergies. In addition, 300 people have been added to global delivery centers to accelerate product development in TriZettong platform.
Cognizant has delivered industry leading growth over the past decade and, according to Cowen analyst Moshe Katri, this trend is likely to continue going forward. In his recent research report, Moshe reiterated his outperform rating on the company and raised his target price to $70. According to him:
"Cognizant will likely continue to stand out vs. its peers considering its: 1. Early investments in digital offerings that are beginning to gain significant traction especially as enterprise clients are beginning to fund larger projects related to SMAC (Social, Mobile, Analytics and Cloud) and as certain (hybrid cloud) projects are creating the need for massive integration capabilities (legacy and cloud-based environments); 2. Increased focus on the Health Care vertical, where both sub-sectors (Pharma and HC Providers) pointing to solid IT spending growth trajectory (a recovery from a 2-year drought); 3. unique go-to-market strategy utilizing vertical-specific consulting skills; and 4. continued investments in key personnel, methodologies, IP, capping non-GAAP EBIT margins in the 19-20% level."
Cognizant is currently trading at forward P/E of 18.85. Out of 30 analysts covering the company, 28 have buy ratings and two have hold ratings. I believe the growth story of Cognizant will continue in coming years and is a good buy at current levels.
