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In this updated coverage research report, we reexamine the information technology sector company Cognizant Technology Solutions Corporation — CTSH 0.00%↑ — to see if it continues to meet QualityValue Investing’s (QVI) Real-Time Stock Picks criteria based on our proprietary checklist analysis of the business’s current wealth and the share price’s present value.
Cognizant Technology Solutions | Current Wealth
Value Proposition
Cognizant Technology Solutions is a dividend-paying mid-cap stock in the information technology sector’s IT services industry. It was added to the QVI Real-Time Stock Picks on November 29, 2022, at a $57.67 cost basis per share, adjusted for dividends paid in cash.
Cognizant Technology Solutions Corporation is a professional services company that provides consulting, technology, and outsourcing services in North America, Europe, and internationally. It operates through four segments: Financial Services, Health Sciences, Products and Resources, and Communications, Media and Technology. The company was incorporated in 1988 and is headquartered in Teaneck, New Jersey, USA.
Economic Moat
Morningstar assigns Cognizant Technology Solutions a narrow moat rating due to its intangible assets and customer switching costs associated with its tech services, which are familiar moat sources across the IT services landscape.
QVI’s Value Proposition Elevator Pitch for CTSH
Cognizant Technology Solutions is a professional services company that has built a timely, profitable, and enduring business model by helping clients from a representative majority of global healthcare, financial services, media, and internet companies become data-enabled and data-driven in the digital era.
QVI’s value proposition rating for Cognizant Technology Solutions: Bullish.
Returns on Management
Revenue Growth and Net Profit Margin
Per the table below, Cognizant Technology Solutions’ trailing three-year annualized revenue growth was single-digit positive but lagged behind the S&P 500 top-line growth of 16.50%. Moreover, the company’s negative revenue growth of -0.10% underperformed the broader market’s 18.20% increase for the most recently reported twelve months.
Further down the income statement, Cognizant had a positive double-digit net profit margin from a 34.36% gross margin, underperforming the S&P 500’s net profit of 20.90% from a gross margin of 54.10%.
Returns on Equity and Invested Capital
Cognizant Technology Solutions’ senior management produced a return on equity, or ROE, aligned with QVI’s targeted threshold while trailing the S&P 500’s ROE of 56.00%.
Stock buyback programs often elevate ROE. In 2023, Cognizant’s board of directors authorized $1.06 billion in share repurchases, while the company repurchased $21.5 million in the previous twelve months.
Cognizant’s return on invested capital, or ROIC, aligned with QVI’s threshold while lagging the broader market’s 23.50% return. In addition, the company’s ROIC exceeded its weighted average cost of capital, or WACC, demonstrating that its senior executives are adequate capital allocators (Source of WACC: GuruFocus).
QVI’s business fundamentals rating for Cognizant Technology Solutions: Bullish.
Click or Pinch Out to Expand
Next, we’ll examine the company’s enterprise downside risks, the stock price’s present value, including share price downside risks, and the investment thesis, all exclusive to Quality Value Investing’s premium (paying) subscribers.
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Unless noted, all data presented is sourced from Charles Schwab & Co. and Yahoo Finance as of the market close on December 12, 2024, and is intended for illustration purposes only.
Disclosure: As of the date of this research report, I/we hold no beneficial positions in CTSH common shares in our family portfolio. I wrote this report myself, and it expresses my own opinions. I am not receiving compensation for it other than from Substack paid subscriptions. I have no business relationship with any company whose stock is mentioned in this post.
Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in independent research or due diligence and consider, as appropriate, consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.
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