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Outsourcing has become part of the status quo in today's business world, and Barron's thinks that makes Cognizant Technology Solutions (NASDAQ:CTSH) an attractive long-term investment, especially in light of a recent discount to Cognizant's share price.

After lowering its outlook this year because of reduced corporate spending, Cognizant shares lost 20% and are trading around $20, a far cry from the February 2007 high of $47.44. Its earnings, however, reflect trouble in the global economy and not trouble specific to the company. Cognizant has a unique market niche and is actively diversifying its business. The company still expects revenue to grow 34%, despite the reduced outlook, and for EPS to reach $1.44 vs. last year's $1.15. Its hybrid business model has made it popular in the U.S., with 78% of revenue coming from U.S. companies like Merck (NYSE:MRK), Aetna (NYSE:AET), and Blue Cross, compared to Indian competitors with only 59% of their profits coming from the U.S.

  • Andrew Silverberg, manager of Alger Large-Cap Growth Fund (which owns Cognizant shares) thinks the stock is worth $45.
  • Banc of America analyst Arvind Ramnani values the stock at $38, twenty times his 2009 EPS forecast of $1.90.
  • Rod Bourgeois of Bernstein Research has a price target of $40.

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  • Cognizant cut its 2008 revenue outlook by 5%, but beat its own forecast for the June quarter with 26% growth in net income and 33% growth in revenue. CEO Francisco D’Souza "the continued deterioration in the macroeconomic environment and sagging consumer and business confidence" were the prompters for the more conservative outlook.
  • Sramana Mitra picks Cognizant as one of her top 10 outsourcing stocks.
Source: Time to Recognize Cognizant - Barron's