Cognizant Still a Best Idea in Tech
The narrow-moat firm remains a leading provider in digital operations, and it has strong prospects in digital and cloud-related work.
Cognizant's (CTSH) third-quarter results were generally in line with our expectations, with the company continuing to cite similar business trends to those of previous quarters. From an industry standpoint, financial services remained under pressure, given macroeconomic uncertainty and a low-interest-rate environment, while ongoing industry consolidation within healthcare continued to weigh on that segment. Also, Cognizant addressed its ongoing foreign corrupt practices investigation, with the firm providing a little more clarity on the matter. We think investors have taken some solace in hearing management describe the investigation in more detail, although the final determination remains unknown. We believe the firm remains a leading provider in digital operations, and it reported noteworthy demand across all industries. We still like the firm’s prospects in digital and cloud-related work and reiterate our $69 fair value estimate and narrow economic moat rating. We view the firm as one of the best investment ideas in the technology space and think it is trading at a meaningful discount to its fair value.
In terms of Cognizant’s investigation, it has identified approximately $5 million in potential improper payments. Cognizant has concluded that the amount is not material and won’t require a restatement of its historical financial statements. The company also finally linked former President Gordon Coburn's departure with the investigation, as we had suspected, and the firm announced a major overhaul to procurement and accounts payable as it applies to real estate transactions in India. Nevertheless, with the investigation ongoing, the duration, scope, and result remain uncertain. Until the final determination is known, it is possible that the investigation could provide a bit of an overhang, but we think that shares have been unfairly punished.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Andrew Lange does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.