Yesterday morning, Elliott Management Corp. released a letter to Cognizant Technology Solutions Corp (NASDAQ:CTSH) management and the board of directors disclosing a $1.4 billion investment in Cognizant. Taking over 4% of the information technology and consulting company’s shares in turn makes Elliott a top-four shareholder.
Elliott additionally laid out a plan for future value creation, as the management firm contends significant upside to the stock exists compared to current levels, and as such, the firm set goals to expand operating margins coupled with initiating a dividend. Furthermore, the firm is advocating for CTSH management to start a $2.5 billion accelerated share repurchase with the commitment to give back 75% of free cash flow to shareholders.
Though William Blair analyst Anil Doradla believes investors will like Elliott’s intentions, he remains sidelined until the company’s long-term becomes a little less opaque. Anticipating a great undertaking ahead, the analyst reiterates a Market Perform rating on shares of CTSH without listing a price target.
From the analyst’s perspective, “We believe Elliott’s concerns are consistent with ongoing demands from investors for stronger capital returns in the face of a changing IT services industry. This has been core to our thesis on the stock and our downgrade to Market Perform last week was supported by our concerns that management was not addressing these issues and continued to be inflexible. While the stock is up roughly 9% to approximately $58 on the news, we believe there is still a lot of work to be done to achieve what Elliott has laid out. The plan would require a significant change to the company’s operating structure which has produced diminishing returns on invested capital over the last several years despite continued focus on investments.”
Overall, “As of now we are maintaining our Market perform rating and expect volatility in the stock as investors await additional clarity on the company’s long-term strategy,” Doradla surmises.
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Anil Doradla is ranked #227 out of 4,239 analysts. Doradla has a 67% success rate and realizes 15.8% in his annual returns. When recommending CTSH, Doradla earns 12.0% in average profits on the stock.
TipRanks analytics demonstrate CTSH as a Buy. Out of 19 analysts polled in the last 3 months by TipRanks, 12 are bullish on Cognizant stock, 5 remain sidelined, and 2 are bearish on the stock. With a return potential of nearly 10%, the stock’s consensus target price stands at $62.47.