Cantor Expects Cognizant Technology Solutions Corp (CTSH) to Return to Above-Industry Growth

Though Cognizant Technology Solutions Corp (NASDAQ:CTSH) underwhelmed slightly on revenue and 2017 guidance when it released fourth-quarter results yesterday, the firm’s quarterly non-GAAP EPS did outperform expectations. Investors seem undeterred, as shares were rising close to 5% and Cantor analyst Joseph Foresi likewise continues to back the long-term odds for the stock.

As such, the analyst reiterates an Overweight rating on CTSH with a $67 price target, which represents a just under 19% increase from where the stock is currently trading.

For the fourth quarter, the firm brought in $3.46 billion in revenue, which though up 7.1% year-over-year did not quite meet the analyst’s forecast calling for $3.48 billion nor FactSet consensus of $3.49 billion. CTSH’s non-GAAP operating margin was 18.7%, falling short of the guided range of 19% to 20%. Non-GAAP EPS of $0.87 aligned with the analyst’s estimate, hit the higher end of guidance looking for a range of $0.85 to $0.88, and topped consensus of $0.86.

For the financial year of 2017, CTSH released guidance for revenue expecting 8% to 10% growth for a range of $14.56 to $14.84 billion. Additionally, management sets EPS expectations to reach at least $3.63, which would indicate 7% growth at the minimum. Consensus had anticipated higher guidance, forecasting $14.78 billion for revenue and $3.67 for EPS. Foresi had been even more confident than consensus with projections of $14.89 billion in revenue and $3.72 in EPS. Following the print, the analyst has revised his 2017 model to revenues of $14.71 billion and EPS of $3.65. CTSH management estimates revenues to reach between $3.51 to $3.53 billion in revenue for the first quarter of 2017 and EPS of at least $0.83. The analyst has subsequently adjusted revenue expectations from $3.50 billion to $3.53 billion and EPS from $0.86 to $0.84.

Foresi notes, “Financial Services revenues decelerated in 4Q16, but management noted optimism about spending to start in 2017. Cognizant revealed Digital revenues as a percentage of the total for the first time, coming in at 23% for 2017 and growing above the company average. The company introduced the official shareholder value enhancement plan, which was created in conjunction with activist investor Elliott Management.”

Ultimately, “We believe the company will be able to continue to capture revenue from clients looking for low-cost alternatives and those looking for transformational engagements centered around Digital technologies. Management announced guidance for 2017 that is roughly in line with expectations. The company introduced the official value enhancement plan. We expect a return to above-industry growth over the long term, which should translate into multiple expansion,” Foresi contends.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, four-star analyst Joseph Foresi is ranked #1,118 out of 4,384 analysts. Foresi has a 60% success rate and realizes 3.5% in his annual returns. However, when recommending CTSH, Foresi loses 1.0% in average profits on the stock.

TipRanks analytics exhibit CTSH as a Buy. Out of 12 analysts polled by TipRanks in the last 3 months, 8 are bullish on Cognizant stock, 3 remain sidelined, and 1 is bearish on the stock. With a return potential of 13%, the stock’s consensus target price stands at $63.89.

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