Today we're going to take a closer look at large-cap Technology company Cognizant Technology Solutions, whose shares are currently trading at $70.38. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
Cognizant Technology Solutions Corporation, a professional services company, provides consulting and technology, and outsourcing services in North America, Europe, and internationally. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, Cognizant Technology Solutions has a trailing 12 month P/E ratio of 17.2 and a P/B ratio of 2.74.
Cognizant Technology Solutions's PEG ratio is 3.61, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
EPS Trend Sustained Primarily by Reducing the Number of Shares Outstanding:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $16,125 | $16,783 | $16,652 | $18,507 | $19,428 | $19,434 |
| Gross Margins | 39% | 37% | 36% | 37% | 36% | 34% |
| Operating Margins | 17% | 15% | 13% | 15% | 16% | 14% |
| Net Margins | 13% | 11% | 8% | 12% | 12% | 11% |
| Net Income (MM) | $2,101 | $1,842 | $1,392 | $2,137 | $2,290 | $2,089 |
| Net Interest Expense (MM) | $27 | $90 | $24 | $9 | $48 | $101 |
| Depreciation & Amort. (MM) | $498 | $526 | $559 | $574 | $569 | $560 |
| Earnings Per Share | $3.6 | $3.29 | $2.57 | $4.05 | $4.41 | $4.1 |
| Diluted Shares (MM) | 584 | 560 | 541 | 528 | 519 | 477 |
| Free Cash Flow (MM) | $2,215 | $2,107 | $2,901 | $2,216 | $2,236 | $1,966 |
| Capital Expenditures (MM) | $377 | $392 | $398 | $279 | $332 | $329 |
| Net Current Assets (MM) | $4,188 | $2,429 | $764 | $1,481 | $1,723 | $1,930 |
| Long Term Debt (MM) | $736 | $700 | $663 | $626 | $638 | $614 |
| Net Debt / EBITDA | 0.0 | -0.42 | -0.51 | -0.14 | -0.27 | -0.31 |
Cognizant Technology Solutions has slimmer gross margins than its peers, weak operating margins with a stable trend, and EPS growth achieved by reducing the number of outstanding shares. On the other hand, the company benefits from growing revenues and a flat capital expenditure trend and low leverage. Furthermore, Cognizant Technology Solutions has irregular cash flows.
