Cognizant’s Financial Services Division Under Pressure, but Cognizant Heavily Discounted to Peers

Cognizant posted a mixed fourth quarter—beating our top-line forecast while missing on the bottom line. Management’s guidance for the quarter ahead is weak out of caution, especially within the firm’s financial services division. In addition, Cognizant refrained from providing an outlook for the full year. Despite management’s conservatism, we are maintaining our $91 fair value estimate for Cognizant shares. While the company has headwinds in the near term as firms delay their still much desired digital transformations, we are confident that Cognizant can benefit from the hefty digitization market in the long term. We continue to believe that Cognizant is one of the most attractive IT services stocks under our coverage. We think most of Cognizant’s peers are fairly valued and Cognizant is being overly penalized for mistakes in its past despite its current solid moat. In addition, we think Cognizant will be reinvigorated by Ravi Kumar’s new appointment to CEO.