Time to Recognize Cognizant - Barron's

Outsourcing has become part of the status quo in today's business world, and Barron's thinks that makes Cognizant Technology Solutions (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 (MRK), Aetna (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.

Comments

[stockezy:]

I agree with the analysis presented above but want to skeptical in the growth prospects presented by US companies. Cognizant derives 78% of its revenue from US companies and I think the slowdown and its aftershocks are going to continue for some time. Yet there is Infosys where one can invest. INFY the ticker, recently acquired an outsourcing company in Europe hence has all the ingredients to address the US dependence concern. More-so the rising dollar is helping to push up profits. Hence begging investors for a more closer look to this stock.

2008 Sep 07 12:22 PM

[Seb:]

It is interesting to note that the author brings in with 3rd party analysts and their expectation on the Cognizant stock. This stock sure trades in at a very low price and is a good buy. We need to look at the performance of the company. Its way bettr than the peers, be it TCS, Wipro or INFY. I am not sure why stockezy thinks INFY is better considering that they all operate on the same turf and INFY has not shown any good progress in the recent quarters but for this big acquisition?
The company that tides over these tough times will be the eventual winner. I have my bets on TCS and CTSH. Lets wait and watch.

2008 Sep 07 11:16 PM