Cognizant Technology
Solomon's Select, by Mark Robertson, Managing Partner August 1st, 2011
CTSH is a world class leader in information and software consulting. The company has led the MANIFEST 40, our collection of the most widely-followed companies.
“Knowledge is power.” — Francis Bacon. Apparently, knowing what to do with information is also a path to returns based on the leadership returns achieved by all of the information-based companies in our MANIFEST 40 (Oracle, Cognizant, Quality Systems, FactSet …) My first reaction was to check to see how many times Cognizant Technology was a repeat selection, only to discover that we’ve not featured this community favorite over the last six years!
The current leading knight of our monthly Round Table sessions, Cy Lynch, selected Cognizant (CTSH) during the July session — citing the company as a world class leader in information and software consulting. The company leads the MANIFEST 40, our collection of the most widely-followed companies by all of you. $100 invested in CTSH during December 2008 is now worth $407. We call that informative … and welcome.
Growth
Morningstar expects CTSH to continue to benefit from the uptick in IT spending by companies around the world and assumes 15.5% growth going forward. The 3-5 year forecast at Value Line is 22%. We’ve used a sales growth forecast of 20.1%.
Profitability
The trailing 5-year average net margin has been 16.1%. We’ve used 14.3% based on matching analyst consensus estimates for future profitability.
Valuation
Morningstar’s fair value of $68 implies a “fair P/E” of approximately 26×. Value Line has a projected average P/E of 21x for 2014-16. Based on consensus and industry analysis, we’ve used 25×.
At a stock price of $69.87, the projected annual return is 16%.
Morningstar rates Cognizant a “hold” and S&P has a “hold” rating on the company.
New-And-Improved Chronicles
We’ve now made our time series charts of PAR and quality available for all companies on their Stocks (Equity Analysis Guide) pages. As a further enhancement, the projected relative return (shaded area shown below) has been added.
Cognizant Technology (CTSH): Chronicle. The projected relative return for CTSH is in the “sweet spot”, between 5-10% (percentage points) greater than the Wilshire 5000. Note that the recent swoon in the stock price has created a potential buying opportunity. Explore your favorite companies.
(1) We see that the recent price swoon for CTSH has delivered a “swell” in the PAR and projected relative return.
(2) When the projected relative return is positive, the stock is slated to outperform the general market. When negative, the return forecast suggests a higher probability that the company may lag the Wilshire 5000. Explore your favorite stocks. We think this is informative … and welcome.
Mark Robertson
Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management focusing on strategic long term investors.