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Cognizant maintains stock target, Hold rating on Belcan acquisition

EditorNatashya Angelica
Published 10/06/2024, 18:50
© Reuters.
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On Monday, Deutsche Bank (ETR:DBKGn) maintained a Hold rating on shares of Cognizant Technology Solutions (NASDAQ:CTSH), with a set price target of $70.00. Cognizant recently announced a definitive agreement to acquire Belcan, a key player in Engineering Research & Development (ER&D) services within the aerospace and defense sector, for an estimated $1.3 billion.

This strategic move is expected to significantly enhance Cognizant's digital engineering capabilities and diversify its offerings in the rapidly growing aerospace and defense industry.

The acquisition is anticipated to be a positive influence on Cognizant's revenue growth, while also being accretive to its earnings per share (EPS) by fiscal year 2026. Still, it is predicted to be dilutive in fiscal year 2024 and neutral by fiscal year 2025. The company aims to achieve over $100 million in revenue synergies within three years of the acquisition.

Cognizant also provided an outlook for its second-quarter 2024 revenue growth, expecting it to be in the upper half of the previously guided range, which was a contraction of 2.5% to 1.0% in constant currency revenue growth. The IT spending environment remains challenging, and the integration of the acquisition will be closely watched to assess the realization of the projected synergies.

Deutsche Bank's analyst noted the potential benefits of the Belcan acquisition to Cognizant's top-line growth profile, while also acknowledging the current weak IT spending climate. The firm will continue to monitor the situation as Cognizant integrates Belcan and strives to capitalize on the forecasted revenue synergies.

In other recent news, Cognizant Technology Solutions has announced its decision to acquire Belcan, LLC, an engineering research and development services provider, in a deal valued at approximately $1.3 billion. The acquisition is expected to contribute over $800 million in annualized revenue to Cognizant and enhance its capabilities in the ER&D sector, particularly within the aerospace and defense markets. The deal is projected to deliver more than $100 million in annual revenue synergies within three years and be accretive to Cognizant's earnings per share by 2026.

In terms of financial performance, 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 challenging market 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. The company'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.

In a recent update, BMO Capital Markets slightly raised the price target for Cognizant to $78 while 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.

InvestingPro Insights

In light of Deutsche Bank's Hold rating for Cognizant Technology Solutions, a look at the company's latest metrics and analyst sentiments via InvestingPro may offer additional perspective for investors. Cognizant's market capitalization stands at a robust $33.28 billion, with a Price to Earnings (P/E) ratio of 16.04, reflecting investor sentiment on the company's earnings capacity.

Adjusted for the last twelve months as of Q1 2024, the P/E ratio is slightly more favorable at 14.58. Despite a slight revenue contraction of 0.58% in the same period, Cognizant maintains a strong gross profit margin of 34.37%, indicating efficient cost management relative to its revenues.

Two InvestingPro Tips highlight the company's financial prudence and potential for growth. Cognizant has consistently raised its dividend for four consecutive years, which may appeal to income-focused investors. Furthermore, 8 analysts have revised their earnings estimates upwards for the upcoming period, suggesting a positive outlook on the company's financial performance. Moreover, the company's stock is characterized by low price volatility, which might be attractive to risk-averse investors.

For those considering an investment in Cognizant, there are additional InvestingPro Tips available that could further inform their decision. To explore these insights, visit https://www.investing.com/pro/CTSH and consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With this subscription, investors can gain access to a total of 9 InvestingPro Tips related to Cognizant, offering a more comprehensive understanding of the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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