Cognizant is Still a Strong Long Term Investment
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Cognizant Technology Solutions (NASDAQ: CTSH) is a leading provider of custom IT consulting and technology services, as well as outsourcing services for Global 2000 companies located in North America, Europe, and Asia. Its largest market is in financial services, including banks and insurance companies, where it tallies 48% of its revenue. Do not be surprised to see this stock start to rise toward the end of the year. While the global economy has slowed sales, this company still looks very profitable with incredible growth potential.
Although the stock had a huge gap down on disappointing revenue guidance, the cut was necessary on account of clients reigning in spending. The slash in its revenue forecast for all of 2012 from 23% to 20% reflected slower anticipated growth and fear that clients will tighten their purse strings.
Cognizant was not the only one affected in the offshore IT industry. SD Shibulal, CEO and MD of Cognizant's Bangalore-based rival Infosys (NYSE: INFY), made mention of headwinds after its fourth quarter results failed to meet expectations. He stated that this year looks challenging for the industry; there will be a slow recovery in the global markets, and Infosys will post a lower-than-expected 8-10% revenue growth for fiscal 2013.
Some analysts lowered their price target for the company, presently trading at $56.95, after the gap down in early May, but the price targets are still very bullish, averaging about $76. Much of Cognizant’s business comes out of North America, and the first quarter of the year was a bit slower than expected. Considering demand is healthier in North America than anywhere else, the outlook is not that bad for the company. European clients (more than anyone else) are examining spending carefully and trying to be more prudent given the volatility which will likely continue throughout the year.
The company is strong statistically and a short lull in revenue is not going to stop a business as strong as Cognizant. Even with reduced forecasts, revenue grew by 24.8% last quarter, while the average for the industry was only 2.5%. It has no debt to speak of and a quick ratio at a very healthy 3.83 for short term debt. A lower revised forecast does not mean the company is doing poorly. It just means that its continued growth may not advance as quickly as previously expected. Cognizant is still a very good, healthy stock to own.
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