CTSH - Embedded Expectations Analysis - 2020 02 19
ï€ Cognizant Technology Solutions Corporation (CTSH:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) Earnings, with a 13.2x Uniform P/E, implying bearish expectations for the firm. However, given management's confidence about their cost structure rationalization, RAD model, and digital pricing, market expectations are overly bearish, and long-term upside remains warrantedï€ Specifically, management is confident their Fit for Growth initiative will improve their cost structure by removing 10,000-12,000 mid to senior level associates and pursuing further real estate rationalization. In addition, they are confident that impacted associates will have the opportunity to participate in various reskilling programs and that their RAD model will match specialist resources in big data and cloud with generalist client partners. Furthermore, management is confident higher pricing in digital offset renewal pressures in their IT business and that a large portion of their revenue-generating headcount approvals were in Europe
Cognizant Technology Solutions is a services company, transforming customers' business, operating and technology models for the digital era. The company's services include digital services and solutions, consulting, application development, systems integration, application testing, application maintenance, infrastructure services and business process services. Additionally, the company develops, licenses, implements and supports proprietary and third-party software products and platforms. The company has organized its services and solutions into four practice areas: Digital Business, Digital Operations, Digital Systems and Technology and Consulting.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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