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Valens Research

CTSH - Embedded Expectations Analysis - 2021 06 08

Cognizant Technology Solutions Corporation (CTSH:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 15.7x Uniform P/E, implying bearish expectations for the firm. Although management's concerns about labor shortages, the firm's growth potential, and bookings momentum suggest the potential for near-term headwinds, given the firm's strong business model, market expectations are overly bearish, and long-term equity performance is likely

Specifically, management may lack confidence in their ability to maintain current margins, sustain Healthcare segment growth, and continue to drive Financial Services segment outperformance. In addition, they may have concerns about labor shortages and attrition, rising labor costs, and potential political headwinds. Furthermore, management may lack confidence in their ability to realize the firm's growth potential, continue to execute their M&A strategy, and maintain bookings momentum, particularly in the Financial Services segment. Moreover, they may be exaggerating the progress of their key deal improvement initiatives, the potential of their hyperscale businesses, and the agility of their legacy and digital project workforce. Finally, management may lack confidence in their ability to utilize data and design expertise to serve clients.

Although management's concerns about labor shortages, the firm's growth potential, and bookings momentum suggest the potential for near-term headwinds, given the firm's strong business model, market expectations are overly bearish, and long-term equity performance is likely for CTSH
Underlying
Cognizant Technology Solutions Corporation Class A

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.

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Valens Research
Valens Research

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