On Tuesday, BofA Securities maintained its Underperform rating on Cognizant Technology Solutions (NASDAQ:CTSH) stock with a steady price target of $70.00.
This evaluation follows Cognizant's announcement of a definitive agreement to acquire Belcan, an engineering services provider, for approximately $1.29 billion. The transaction includes $1.19 billion in cash and $97 million in Cognizant stock, equating to a price/revenue multiple of around 1.6 times.
Cognizant, a global provider of IT services, has entered into an agreement to purchase Belcan, which specializes in engineering research and development, particularly serving aerospace and defense clients.
The acquisition is part of Cognizant's strategy to diversify its offerings and is consistent with its use of a strong balance sheet to engage in mergers and acquisitions. The deal is expected to provide Cognizant with additional capabilities in the engineering sector.
Despite this move to diversify, the firm noted that Cognizant's visibility into its multi-year organic growth profile remains unclear. The company also announced that its second-quarter revenues are anticipated to be in the upper half of its previously issued guidance.
The acquisition of Belcan is seen as a step towards diversification for Cognizant, as the company continues to navigate a challenging organic growth environment. With a solid financial position, further mergers and acquisitions by Cognizant would not be unexpected, as indicated by the firm's analysis.
This strategic acquisition by Cognizant is reflective of the company's efforts to expand its service offerings and market reach. The firm's reiteration of the Underperform rating suggests that, despite these efforts, there are still uncertainties regarding Cognizant's growth trajectory in the coming years.
In other recent news, Cognizant Technology Solutions has announced a definitive agreement to acquire Belcan, LLC, a key provider of engineering research and development services, in a $1.3 billion deal.
The acquisition, expected to contribute over $800 million in annualized revenue to Cognizant, aligns with the company's strategy to tap into the rapidly growing ER&D services market. The transaction is anticipated to close by the end of September 2024, subject to regulatory approvals and customary closing conditions.
BMO Capital Markets has slightly raised the price target for Cognizant, maintaining a Market Perform rating. This adjustment follows Cognizant's reaffirmation of its full-year 2024 guidance, which BMO Capital views as a positive development in the IT services sector's demanding environment.
Cognizant's Q1 2024 earnings report showed a slight revenue decline to $4.8 billion, yet the adjusted operating margin improved by 50 basis points to 15.1%. Despite a tight spending environment, the company secured eight deals over $100 million each and is planning to train over 70,000 associates on Google (NASDAQ:GOOGL) Cloud's AI offerings. Cognizant's full-year revenue is projected to range from a 2% decline to 2% growth in constant currency, and they plan to return over $1 billion to shareholders in 2024.
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