Company Name: Cognizant Technology Solutions Corporation
Entry Price: $73.50
Target Price: $82.00
Projected Yield: 11.6%
Time Line: 3 to 6 months
About Cognizant Technology
Cognizant is a multinational company based in the US, which provided IT products and services, including technology solutions, consulting, operational services, and data engineering products based on cloud techs. The company operates in four sectors: financial services, healthcare, media and technology communications, and products and resources. Cognizant Technology is a major player in the IT consulting and outsourcing market, with the stock being included into the NASDAQ 100.
What's the Idea?
Capitalize on the stock that may rise due to the business restructuring and profitable acquisitions.
Buy Cognizant Technology Shares >>
Why Trade Cognizant Technology?
Reason 1: Business Restructuring
Before the pandemic, Cognizant already launched a business process optimization program aimed at cost reduction. This should be achieved with reducing staff, consolidating facilities, and exiting the content moderation business. These changes may lead to the reduction of approximately 13-15 thousand jobs, mainly in India. The costs are expected to get reduced by $500M to 550M.
This program will help to increase the company's business margin and free up money for investments in key areas, which include cloud technologies and the Internet of Things. Thus, the company will be able to focus the most advanced and popular areas.
Reason 2: M&A Deals for Boosting Organic Growth
Despite the pandemic, Cognizant Technology Solutions completed a number of M&A deals in 2020, mainly with a focus on cloud technology and IT. In particular, the company acquired 10th Magnitude, a consulting and service provider for companies migrating their IT infrastructures to Microsoft Azure. 10th Magnitude solutions are used by major Fortune 500 companies and industries, including those working in aerospace, healthcare, and financial services. This is a valuable asset for Cognizant that complements the extensive solution portfolio.
The company also acquired EI-Technologies, which gave Cognizant the opportunity to strengthen its position in the cloud service sector in the EU market. The COVID-19 crisis had a stimulating impact on the cloud solution demand, and Cognizant is looking to capitalize on this trend.
Reason 3: Stable Financial Condition and Positive Outlook
The COVID-19 crisis did not have a significant impact on the company's financial condition: in Q2 2020, the earnings decreased by only 3.40% compared to last year, to reach $4B, while the operating profit margin was at 14.10%, and the adjusted earnings per share amounted to $0.82. The company's financial results slightly deteriorated amidst the crisis, but the impact was not as significant as in other sectors. Cognizant also has a low leverage with significant cash reserves: $2.45B of debt against $4.58B in cash. The company has a stable free cash flow: it was $886M in Q2 2020. With its high liquidity, Cognizant can continue its mergers and acquisitions to expand its portfolio of IT services and products, which will further stimulate the organic growth.
The company is also buying out shares: in Q2, it bought back shares at $40M, while there are still $1.80B to go. The buyback program may also stimulate the stock price.
Currently, the key Cognizant stock numbers are the following: company's value to sales ratio: 1.97x, company's value to EBITDA ratio: 9.69x, company's value to annual earnings per share ratio: 21.95x. This is below the industry average, which means the stock is undervalued and may be good for buying.
How to Use the Idea
- Buy Cognizant Technology Solutions stock at $73.50.
- Allocate no more than 2% of your portfolio amount. To build a balanced portfolio, you can use our analysts' recommendations for an USD or a EUR portfolio.
- Sell the stock when the price is at $82.00 per share.
How to Buy Cognizant Technology Shares?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: In the Web Terminal section, type CTSH.US (Cognizant Technology Solutions ticker in the NASDAQ) in the search box, and select Cognizant Technology Solutions in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will shop up, type CTSH.US ( Cognizant Technology Solutions ticker in the NASDAQ) and select Cognizant Technology Solutions in the results. You will then see Cognizant Technology Solutions stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
Buy Cognizant Technology Solutions Stock: Don't Miss Post-Restructuring Growth!
Buy Cognizant Technology Shares >>
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