Cognizant Solutions: "2-in-a-box"

Cognizant Solutions offers tech consulting with a unique customer relationship model.

Cognizant Technology Solutions Corporation (CTSH) provides information technology consulting, and business process services worldwide. CTSH began operations in 1994 as an in-house technology development center for Dun & Bradstreet Corp.

The company operates through four segments: Financial Services, Healthcare, Manufacturing-Retail-Logistics, and Other.  Financial Services and Healthcare comprise the bulk of revenues and combined represent 70% of company sales.

The company offers services such as analytics, consulting, supply chain management, human capital management. In addition, Cognizant also sells a diversified selection of products and platforms like ModelEye, Cloud360, and LifeEngage. 

A big driver of its business is creating computer and data infrastructure in response to increasing government regulation in many different sectors and industries.  As regulations grow more abundant and complex, CTSH is a prime provider of solutions to these issues.

For the year 2015, revenues jumped 21% to $12.42 billion. Leading the way were financial services with an increase of 17% to $5 billion.  Investment by financial institutions for regulation and compliance, cybersecurity, and infrastructure transformation drove demand for Cognizant’s services. Healthcare segment revenue grew 36% to $3.7 billion, with the changing regulatory environment and consumerization of healthcare acting as primary spending tailwinds.

CTSH has a unique approach to customer relationships, known as “2-in-a-box”.   In this relationship model, a senior-level US-based manager oversees the customer interaction while an equal-level manager in India overseas product and solution delivery to the client.  This differentiation and attention to customer needs has created a strong bond between the company and its clients.    Since 2010, the company has more than doubled its annual revenue and looks to continue this upward growth trajectory.  With 78% of its business in North America, this business model is helping CTSH stave off competition.

2015 full year EPS were $2.65, up from $2.35 in 2014.  The company has offered guidance of a soft first half of 2016 with business improving in the second.  In 1Q16, Cognizant expects revenues of around $3.2 billion with EPS of $0.78 to $0.80. Full-year 2016 revenues are expected to be in the range of $13.7 billion to $14.2 billion with EPS between $3.32 and $3.44. 

Share prices have fallen from $70 as the high in 2015 to a current price of $57, and erased most of last year’s gains.  The current weakness is also a good time to review CTSH for possible addition to your technology portfolio. 

Based on 2016 guidance, share prices are trading at a 16.7 forward PE.  While higher than earnings growth rate of about 13%, the forward PE is still reasonable for a top-quality technology firm.   

This article first appeared in the March issue of Guiding Mast Investments.  Thanks for reading, George Fisher