CTSH - Embedded Expectations Analysis - 2021 03 04
Cognizant Technology Solutions Corporation (CTSH:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 16.6x Uniform P/E, implying bearish expectations for the firm. However, given management's confidence about the digital market, recent acquisitions, and the strength of their partnerships, market expectations are too bearish, and longer-term equity performance is likelySpecifically, management is confident their strategic direction led to refinements of their portfolio, there is growing optimism in the digital market, and distributed agile methods will fuel different ways of working going forward. Furthermore, they are confident their acquired businesses contributed 210bps improvement to their revenue and their employee value proposition and employee brand remain world-class. Management is also confident their WorkNEXT digital workplace solutions suite matches client requirements for transformation through self-service and automation and that their collaborations with key partners, including leading hyperscale and SaaS companies, are growing stronger
Given management's optimism about the digital market, their recent acquisitions, and the strength of their partnerships, market expectations are still too bearish. As such, longer-term equity performance is likely for CTSH going forward
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
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