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Cognizant Technology Solutions Corp Class A CTSH

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Morningstar’s Analysis

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It’s a Hot Job Market Summer, Which Led to a Cooled In-Line Q2 for Cognizant; Shares Fairly Valued

Julie Bhusal Sharma Equity Analyst

Analyst Note

| Julie Bhusal Sharma |

While Cognizant’s second-quarter top-line well surpassed FactSet consensus, the labor shortage amid this summer’s hot job market moderated the robust demand, leading to adjusted EPS coming roughly in line with FactSet consensus and our estimates. Despite continued elevated attrition levels expected in the remainder of the year, Cognizant raised its outlook for 2021, which bodes confidence in the pace of its hiring and reskilling of employees to meet oversubscribed demand for IT services. Overall, we think Cognizant is making a laudable effort amid what it claims has been the hottest job market the company has seen in the last 10 years. Furthermore, we have no complaints on demand given the company’s healthy book-to-bill of 1.2 over the last twelve months. Therefore, adjusting for a rosier outlook regarding demand, while still being realistic about margin stress from the labor shortage, we are increasing our fair value estimate for narrow-moat Cognizant to $76 per share from $70 per share. Shares are up 6% to $74 per share after hours, leaving the stock fairly valued in our view.

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Company Profile

Business Description

Cognizant is a global IT services provider, offering consulting and outsourcing services to some of the world’s largest enterprises spanning the financial services, media and communications, healthcare, natural resources, and consumer products industries. Cognizant employs nearly 300,000 people globally, roughly 70% of whom are in India, although the company’s headquarters are in Teaneck, New Jersey.

300 Frank W. Burr Boulevard, Suite 36, 6th Floor
Teaneck, NJ, 07666
T +1 201 801-0233
Sector Technology
Industry Information Technology Services
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Slow Growth
Employees 301,200