Summary
- Cognizant is a high-quality IT services company that generates a high level of return on invested capital and stands to benefit from long-term structural growth drivers.
- The recent downward adjustment in FY19 growth targets following a weak 1Q19 has resulted in a material share price correction of approx. 20%.
- However, the long-term thesis for an investment in Cognizant remains largely intact, and the current valuation provides an attractive buying opportunity.
What happened and why Cognizant is a buy
Cognizant Technology Solutions (CTSH) recently reported its 1Q19 resultswhich came below expectations due to softness in its financial services and healthcare segments. As a result, the company made a downward revision in its full-year outlook, which prompted a stock price decline of approx. 20%.
Despite this temporary setback, we believe that the long-term investment case on Cognizant remains largely intact. As a result, we have recently increased our stake in the company, which we have owned since 2016.
This article briefly outlines our investment thesis on Cognizant.
Company background & description
Established in 1994 in New Jersey, Cognizant is a leading provider of professional services aiming to assist clients transforming their business model for the digital era. Its services include digital services & solutions, consulting, application development, systems integration, application testing & maintenance, infrastructure services, and business process services.
In 2018, Cognizant derived some 76% of revenues from North America, 18% from Europe (nearly half of which from the UK), and 6% from the rest of the world. By end markets, the company serves customers in the financial services industry (35% of 2018 sales), healthcare (29%), products & resources (22%), and communications, media & technology (14%).
