CTSH Stock Prediction For 2019 (Buy or Sell?)
For investors, it pays to be contrarian. A much-ballyhooed stock can sometimes mask inherent weaknesses. It’s our job to find the real story behind the headlines and press releases.
Which brings us to Wall Street darling Cognizant Technology Solutions (NSDQ: CTSH). As information technology (IT) continues to thrive, CTSH is a sector bellwether that gets a lot of enthusiastic coverage in the financial press.
Let’s take an unvarnished look at this “story stock,” to separate hype from reality. Is Cognizant really all it’s cracked up to be?
Let’s take a look?
What Is Cognizant Technology Solutions?
Based in New Jersey, Cognizant Technology Solutions is a global corporation that provides IT services, including digital and operational consulting. With a market cap of $40 billion, Cognizant is a business process outsourcer that tries to meet the always urgent corporate need to reduce costs.
Cognizant is included in the NASDAQ-100 and the S&P 500 indices. It’s also one of the fastest-growing Fortune 500 companies.
The company comprises four divisions: Financial Services; Health Care; Products and Resources; and Communications, Media and Technology.
Cognizant’s clients want to do more with less, which often means replacing U.S. employees with cheaper labor outsourced from overseas or, even more enticingly, with software.
How Has Cognizant Technology Solutions Stock Performed?
The technology sector has been on a tear for the past two years, providing a tailwind for CTSH. The IT segment, in particular, has racked up double-digit earnings growth as corporations flush with cash make long-deferred investments in their business infrastructures.
The still-strong economic recovery is fueling demand for IT. CTSH has been among the coterie of market-leading technology stocks that have kept this long bull market alive. That said, the tech sector has recently pulled back as investors grow concerned over excessive valuations.
Over the past 12 months, CTHS has lost 8.7%, compared to a gain of 5.3% for the S&P 500. Over the past two years, CTHS has gained 32.5% versus 30% for the S&P 500. Over the past five years, CTHS has gained 53% vs. a gain of 50% for the S&P 500.
How Has Cognizant Technology Solutions Performed In 2017/2018?
Cognizant’s performance has generally tracked IT stocks as a whole, serving as a sector bellwether. CTHS gained 25.6% in 2017, versus a gain of 19.4% for the S&P 500. Year to date in 2018, CTSH has lost 2.7% whereas the S&P 500 has gained 0.5%.
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Who Are Cognizant Technology Solutions Rivals?
Competition is fierce in Cognizant’s sector, as innovation and breakthrough technologies continue apace. Here are the competitors that stand out.
Allscripts Healthcare Solutions (NSDQ: MDRX)
Allscripts is a provider of health care information technology, which puts it in direct competition with Cognizant’s health care division.
The most valuable commodity in the business world today is information, and that’s especially true in the health care field, where success isn’t just measured in dollars and cents but also in human lives.
One of the hottest trends in the health sector is federally mandated electronic recordkeeping. As the use of Electronic Medical Records (EMR) proliferates and the technology behind it becomes more advanced, the federal government has come to the conclusion that it’s an inevitable trend of great benefit to society. Uncle Sam’s pressure on doctors and hospitals to use EMRs is benefiting firms such as MDRX and CTSH.
Cerner (NSDQ: CERN)
Cerner is another major player in the booming field of EMRs.
The company’s “Cerner Millennium” software combines clinical, financial and management information systems that allow health care providers to access an individual’s EMR at the point of care. The company’s clients include physicians, nurses, laboratory technicians, and pharmacists.
In addition to providing the integrated software packages necessary to digitize health records, Cerner also handles implementation and records management and helps providers prove EMR adoption to the federal government.
Booz Allen Hamilton (NYSE: BAH)
Booz Allen Hamilton provides management consulting and technology solutions for public and private sector entities in the U.S. and around the world.
Booz Allen Hamilton specializes in cyber security solutions for agencies. The company’s roots in the U.S. military establishment run deep, starting with World War II and continuing throughout the first Cold War… and now into Cold War II, as Russian hackers target American elections.
Here’s the upshot: Cognizant competes with these companies in health care and cyber security, but it’s also diversified. That means it benefits from the same tailwinds as its major rivals but with less risk because its focus isn’t as narrow.
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Will Cognizant Technology SolutionsGo Up In 2019 (Should You Buy)?
This video provides a quick summary of Cognizant’s corporate strengths:
Several trends strongly favor IT in general and Cognizant in particular.
We expect a wave of merger and acquisition activity in the IT sector in 2019, fueled by advantageous tax changes. Tech giants possess deep pockets and need to find new avenues of expansion by gobbling up smaller, entrepreneurial firms. Cognizant is likely to make strategic acquisitions to nurture organic growth.
Another positive is multiyear growth in IT spending, as cash-rich corporations make long deferred upgrades. The tech sector also invests in considerable research and development (R&D), which should increase as the economic recovery remains on track. Historically, a company’s R&D is positively correlated with its stock performance.
Worldwide IT spending is projected to total $3.7 trillion in 2018, an increase of 6.2% from 2017, according to a recent forecast by Gartner. See the following chart, compiled with data from Gartner’s report:
Will Cognizant Technology SolutionsGo Down In 2019 (Should You Sell)?
Since Donald Trump’s election as president in November 2016, technology shares have enjoyed a remarkable run. The large-cap names have been the market leaders, propelling the overall stock market into the longest bull run in history.
Therein lies the problem. By almost any yardstick, tech shares are overvalued. Leading tech names are poised for a fall, especially Internet stocks. When the market leaders falter, the rest of the troops are likely to follow.
Overall Cognizant Technology SolutionsForecast And Prediction For 2019
But here’s the good news: Cognizant stock is less expensive than its nearest competitors, none of which is growing nearly as rapidly or delivering strong results as predictably.
The company’s other strengths include a rock-solid balance sheet with $4.25 billion in cash on hand and low debt of only $749 million.
One of Cognizant’s greatest strengths lies in the fact that most of its more than 274,000 employees toil in low-cost India.
And yet, the stock trades at a forward price-to-earnings (P/E) ratio of 13.0, compared to 16.2 for the S&P 500 and 17.2 for the IT sector as a whole. That’s a bargain, especially in light of CTSH’s growth prospects.
The average analyst expectation for CTSH’s year-over-year earnings growth is 19.9% for 2018, 11.9% for 2019, and 13.6% over the next five years on an annualized basis.
This IT stalwart should continue racking up robust gains in 2019, even if the broader markets stumble. Among executive cost cutters, Cognizant’s services enjoy perennial demand.
John Persinos is the managing editor of Investing Daily.