Is Wall Street Misjudging Cognizant Technology Solutions (CTSH) Stock?

Cognizant Technology Solutions may be undervalued with mixed growth prospects, but the 24 analysts following the company give it an rating of hold. Their target prices range from $49.0 to $91.0 per share, for an average of $65.1. At today's price of $62.87, Cognizant Technology Solutions is trading -3.43% away from its average target price, suggesting there is an analyst consensus of some upside potential for the stock.

Cognizant Technology Solutions Corporation, a professional services company, provides consulting and technology, and outsourcing services in North America, Europe, and internationally. Based in Teaneck, NJ, the large-cap Technology company has 355,300 full time employees. Cognizant Technology Solutions has provided a 1.9% dividend yield over the last 12 months.

Cognizant Technology Solutions has a trailing twelve month P/E ratio of 14.3, compared to an average of 27.16 for the Technology sector. Based on its EPS guidance of 4.8, the company has a forward P/E ratio of 13.1.

The average compound growth rate of the company's historical and projected earnings per share is 7.8%. On this basis, the company's PEG ratio is 1.74, which suggests that it is overpriced.

Furthermore, the market is potentially undervaluing Cognizant Technology Solutions in terms of its book value because its P/B ratio is 2.6. In comparison, the sector average P/B ratio is 6.23. The company's shares are currently 42.4% above their Graham number, which suggests that they are not trading at a fair value in terms of earnings and net assets.

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $16,783 $16,652 $18,507 $19,428
Gross Margins 36.6% 35.9% 37.3% 35.9%
Operating Margins 15.9% 14.0% 15.3% 15.3%
Net Margins 10.98% 8.36% 11.55% 11.79%
Net Income (MM) $1,842 $1,392 $2,137 $2,290
Net Interest Income $150,000 $95,000 $21,000 $40,000
Depreciation & Amort. -$507,000 -$552,000 -$574,000 -$569,000
Earnings Per Share $3.29 $2.57 $4.05 $4.41
EPS Growth n/a -21.88% 57.59% 8.89%
Diluted Shares (MM) 560 541 528 508
Free Cash Flow (MM) $2,107 $2,901 $2,216 $2,236
Capital Expenditures (MM) -$392 -$398 -$279 -$332
Net Current Assets (MM) $2,429 $764 $1,481 $1,723
Current Ratio 2.55 1.94 2.08 2.17
Long Term Debt $700,000 $663,000 $626,000 $638,000
Net Debt / EBITDA -0.54 -0.64 -0.27 -0.38
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.