BMO Is Taking a More Cautious Approach on Cognizant Technology Solutions Corp (CTSH)

Cognizant Technology Solutions Corp (NASDAQ:CTSH) headlines a busy week of earnings for the outsourcing group. Investors will be focused on 2017 outlook and potential impact from immigration reform when the IT services firm reports fourth-quarter results tomorrow morning.

Ahead of the print, BMO analyst Keith Bachman slightly lowers his price target on Outperform-rated Cognizant Technology from $58 to $57, as he believes that visa legislation could negatively affect margins.

“While we think the political process is difficult to estimate, we note support from portions of both political parties to implement legislation that targets Indian-based suppliers. Based on higher potential wage rates, we believe that CY2018 operating margin impact could be more than 100 basis points. Moreover, the cumulative impact increases over time, meaning if changes are enacted early this year that affect wage rates, then the impact in CY2018 would be more than 200 basis points,” Bachman stated.

Looking beyond the quarter, Bachman’s revenue estimates are modestly below consensus for the March 2017 Q, and his EPS estimates are in line. Further, the analyst believes that Cognizant could announce a share buyback that reduces the share count, as compared to the past few years in which the buyback keeps the share count flat.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Keith Bachman has a yearly average return of 11.2% and a 61% success rate. Bachman has a -4.2% average return when recommending CTSH, and is ranked #244 out of 4382 analysts.

Out of the 23 analysts polled in the past 12 months, 15 rate Cognizant Technology Solutions stock a Buy, six rate the stock a Hold and two recommend to Sell. With a return potential of 18%, the stock’s consensus target price stands at $63.60.


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