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Is Cognizant Stock an Attractive Buy at Its Current Price?

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Jun. 4 2019, Published 11:28 a.m. ET

Cognizant’s returns

Shares of software services company Cognizant Technology (CTSH) have fallen close to 22.0% in the last 12 months. Since the start of May, Cognizant stock has lost over 17.0%, and it’s currently trading 27.0% below its 52-week high of $83.35.

The stock lost almost 20.0% in the first three days of last month as investors were left unimpressed by its first-quarter results and its tepid guidance. Cognizant’s sales in the first quarter stood at $4.11 billion, and its adjusted EPS were $0.94—below Wall Street’s estimates of $4.17 billion in revenue and $1.03 in EPS.

Cognizant has also lowered its sales outlook for the rest of 2019. The company now expects its sales to grow between 3.6% and 5.1% year-over-year, down from its earlier growth estimate of between 7.0% and 9.0%. This estimate cut was significant and sent the stock spiraling downward.

Cognizant expects slowdowns in its Financial Services and Healthcare segments to affect its sales this year. Its Financial Services segment is its largest and accounted for 38.0% of its sales last year, followed by Healthcare at 28.0%.

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PE multiple

Cognizant stock is trading at a forward PE multiple of 14.0x. While analysts expect its earnings to fall 14.40% this year, they expect its earnings to rise 10.0% next year. The stock’s earnings are expected to rise at a compound annual growth rate of just 6.0% over the next five years.

Comparatively, its earnings have risen 14.0% in the last five years. CTSH’s sales are expected to see annual growth of 5.7% between 2018 and 2021.

Analysts’ estimates

Of the 33 analysts tracking Cognizant, 24 have given it “buys,” three have given it “holds,” and none have given it “sells.” Analysts have a 12-month average target price of $68.85 on the stock, which indicates a potential upside of 14.0% from its current price.

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