CTSH - Embedded Expectations Analysis - 2020 05 26
Cognizant Technology Solutions Corporation (CTSH:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 11.0x Uniform P/E, implying bearish expectations for the firm. However, given management's excitement about cost management and confidence about Fit for Growth and relaxed distribution constraints, market expectations are overly bearish, and equity upside remains warranted for CTSH going forwardSpecifically, management generated an excitement marker when saying things happen very quickly on the margin side and they can move to take or eliminate costs. In addition, they are confident they have become more work-from-home enabled as distribution constraints have become less restrictive in India, that they have achieved $250mn of annual run rate savings from their Fit for Growth program, and that they expect to generate $500mn-$550mn of annualized gross run rate savings in 2021
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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