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Cognizant shares maintain Buy, price target post-acquisition

EditorNatashya Angelica
Published 10/06/2024, 18:44
© Reuters.

On Monday, Cognizant Technology Solutions (NASDAQ:CTSH) received a reaffirmed Buy rating and an $82.00 stock price target from a Citi analyst following the announcement of a major acquisition. Cognizant has entered into an agreement to acquire Belcan for approximately $1.3 billion, marking one of the company's most significant acquisitions to date.

The deal is set to enhance Cognizant's Engineering & Research Development (ER&D) capabilities by adding substantial domain and technical expertise. Moreover, it will broaden the company's industry exposure with an expansion into the Aerospace & Defense (A&D) sector, introducing blue-chip clients and countercyclical demand elements to its portfolio.

The strategic rationale behind the acquisition is viewed positively, as it is expected to be accretive to Cognizant's organic revenue growth and offer achievable synergy targets, with the prospect of longer-term earnings per share (EPS) accretion. This move is seen as providing Cognizant with an additional mechanism to potentially match the pace of its competitors when the demand environment improves, complementing the company's existing self-improvement strategies.

In conjunction with the acquisition news, Cognizant also updated its revenue expectations for the second quarter of 2024. The company now anticipates revenue to land in the upper half of its previously provided outlook range, which spans from $4.75 billion to $4.82 billion. This update is interpreted as making Cognizant's outlook for 2024 appear more secure. The positive outlook and the recent strategic moves by Cognizant have led to continued support from Citi, encouraging investment in CTSH shares.

In other recent news, Cognizant Technology Solutions has made significant strides in its business operations. The company recently announced a definitive agreement to acquire Belcan, a key player in the 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. Deutsche Bank (ETR:DBKGn) maintained a Hold rating on shares of Cognizant, with a set price target of $70.00, while BMO Capital Markets slightly raised the price target for Cognizant to $78, maintaining a Market Perform rating.

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.

These are among the recent developments that reflect Cognizant's strategic moves to navigate the competitive landscape of IT services, balancing investor expectations with market realities.

InvestingPro Insights

As Cognizant Technology Solutions (NASDAQ:CTSH) gears up for its significant acquisition of Belcan, the company's financial health and market performance remain key factors for investors. With a Market Cap of $33.33 billion and a P/E Ratio that has adjusted to 14.58 over the last twelve months as of Q1 2024, CTSH displays a stable investment profile. The company's commitment to shareholder value is evident as it has raised its dividend for 4 consecutive years, boasting a Dividend Yield of 1.82% as of May 2024. This is complemented by the fact that CTSH has a track record of profitability over the last twelve months.

Investors may also find reassurance in the InvestingPro Tips that highlight Cognizant's low price volatility and its status as a prominent player in the IT Services industry. Moreover, with 8 analysts having revised their earnings upwards for the upcoming period, there is an optimistic sentiment surrounding the company's future performance. For those considering diving deeper into CTSH's financials and forecasts, InvestingPro offers numerous additional tips to guide investment decisions. To explore these insights, investors can visit https://www.investing.com/pro/CTSH and use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

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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