Despite Ultra-High Employee Attrition, Cognizant's 2021 Healthy All Around; Shares Attractive

With the IT services industry, two major forces have been battling--with digital transformation demand a major tailwind, and a dire talent shortage serving as a significant headwind. Despite these conflicts, Cognizant posted a decent fourth quarter with top line results coming in right around FactSet consensus and our estimates, while non-GAAP earnings per share was 6% higher than FactSet consensus and 3% higher than our original forecasts. While guidance for 2022 was lower than we were expecting, likely leading to shares down 2% upon results, it still represents healthy growth and margin expansion on an absolute basis. Significant unmet demand as a result of talent constraints in the industry has us boosting our forecasts for 2023 through 2026--as we think digital transformation work will continue to remain elevated over the next five years. Furthermore, Cognizant's acceleration of international revenue is promising. Our top line improvements to outer years in our model, combined with our model roll, has us raising our fair value estimate for narrow-moat Cognizant to $102 per share from $95 per share and we view the narrow-moat stock as attractively priced as the stock trades at $86 after hours.