Weekly Equity Idea Highlight - 2019 09 04
CTSH has built an industry leading asset-based consulting business over the past 15 years, seeing remarkably stable returns and steady investment in growth, through various economic cycles and potentially impactful regulatory changes. However, the market is expecting both their ability to drive growth and sustain and improve profitability to severely erode going forward, with UAFRS-based (Uniform) ROA falling by half and growth slowing too.While markets are overly pessimistic, management is aligned to focus on maintaining margins to preserve their uniform ROA going forward, and their growth-based compensation will also drive them to not see growth decline as much as the market is expecting. This signals expectations for declines in ROA and growth are too negative.
Also, during the most recent Q2 call (7/31) and Q1 earnings call (5/2), management showed growing confidence about their outlook even as new management appeared to have drastically lowered guidance to re-set investor expectations. Management showed confidence in both calls about their outlook for growth across their end markets, including Healthcare in particular, Financial Services, and manufacturing and logistics. They also showed confidence around their overall outlook and about margins and cost structure improvement initiatives accelerating in H2 2019. Tellingly, in neither call did management generate any negative markers that would have caused concerns about hitting on, and exceeding, their reset outlook for the market.
Considering low market expectations, strong stable ROA', favorable management alignment and solid positioning, and positive management outlook, there appears to be equity upside potential for CTSH.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.