Cantor Bullish on Cognizant Technology Solutions Corp (CTSH) After Solid Q3 Earnings

Cognizant Technology Solutions Corp (NASDAQ:CTSH) shares are rising almost 5% after the information technology and consulting company posted its third-quarter print today with an “in line” top line and bottom line outclass. On back of solid earnings and “believing current headwinds will subside,” Cantor analyst Joseph Foresi reiterates a Buy rating on CTSH with a price target of $68, which represents just under a 25% increase from where the shares last closed.

For the quarter, CTSH brought in revenue that increased 2.5% quarter-over-quarter and 8.4% year-over-year to $3.45 billion, mirroring both Foresi’s projection as well as FactSet consensus. Meanwhile, non-GAAP operating margin hit 19.3%, which fell within the targeted range of 19 to 20%, whereas non-GAAP EPS of $0.86 outperformed expectation, with consensus having called for $0.83 and corporate guiding to a range of $0.82 to $0.85.

Shining a light on two of CTSH’s most promising assets, Foresi underscores its Communications/Information Media/High Tech segment that presently “leads growth” with a 13.6% year-over-year increase coupled with robust expansion abroad in Continental Europe, which “shows strength” on a 17.0% year-over-year boost.

For 2016, guidance looks for revenue in the range of $13.47 to $13.53 billion, denoting an expectation of 8.5 to 9.0% growth, compared to the Street’s estimate of $13.55 billion and Foresi’s forecast of $13.54 billion. The non-GAAP EPS guided estimate was “tightened” from $3.32 to $3.44 down to $3.38 to $3.41, juxtaposed against the analyst’s projection of $3.37, which mirrors consensus. For fourth quarter, corporate calls for revenue to yield $3.45 to $3.51 billion and EPS of $0.85 to $0.88, with consensus expecting $3.51 billion in revenue and $0.86 in EPS. Foresi is slightly more optimist with estimates of $3.52 billion in revenue and $0.87 in EPS.

The analyst notes in addition to the report, management also offered a corporate update as to “its ongoing internal investigation regarding potential improper payments in India. The investigation has found the company did not maintain an effective control environment. The investigation has identified a total of approximately $5.0M in payments that may have been improper.”

“Mgt. lowered 2016 revenue guidance slightly, reflecting the impact of near-term macroeconomic headwinds similar to what we saw from competitors. The company released an update on an ongoing internal investigation as well. We look to the earnings call to provide color on the investigation update the outlook for the Healthcare and Financial Services verticals, macro economic outlook, progress on the Digital front, and thoughts around long term growth/margin outlook,” Foresi concludes.

As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, analyst Joseph Foresi is ranked #3,946 out of 4,162 analysts. Foresi has a 26% success rate and faces a loss of 8.3% in his yearly returns. When recommending CTSH, Foresi forfeits 9.8% in average profits on the stock.

TipRanks analytics indicate CTSH as a Buy. Out of 17 analysts polled by TipRanks, 12 are bullish on Cognizant stock, 4 remain sidelined, and one is bearish on the stock. With a return potential for nearly 18%, the stock’s consensus target price stands at $64.47.screen-shot-11-07-16-at-10-55-pm

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