CTSH Stock Study (10-30-25)

Posted by Mark on February 3, 2025 at 06:54 | Last modified: October 30, 2025 08:21

I recently studied Cognizant Technology Solns Corp. (CTSH, $71.69). Previous studies are here, here, here, and here.

M* writes:

     > Cognizant Technology Solutions is a multinational IT services provider
     > that offers a range of consulting and business process outsourcing
     > services. Originally founded in India, the company is headquartered in
     > the US and serves enterprise customers spanning the financial services,
     > healthcare, and resources industries. With most of its workforce
     > located in India, Cognizant leverages a global delivery model that
     > helps clients outsource their IT needs to offshore labor.

Over the past decade, this large-size company has grown sales and EPS at annualized rates of 5.3% and 7.0%. Lines are somewhat up, straight, and parallel with sales dips in ’20 and ’23 along with EPS rockiness from declines in ’16, ’17, ’19, ’20, and ’23. Five- (10-) year EPS R^2 is 0.62 (0.71) and Value Line (VL) gives an Earnings Predictability score of 95.

Over the past decade, PTPM leads peer and industry averages despite trending down from 17.4% (’15) to 14.9% (’24) with a last-5-year mean of 14.5%. ROE trails peer and industry averages, ranging from 12.2% in ’20 to 18.9% in ’18 with a last-5-year mean of 16.2%. Debt-to-Capital is much less than peer and industry averages while declining from 12.2% (’15) to 9.3% (’24) with a last-5-year mean of 11.1%.

Quick Ratio is 1.96 and Interest Coverage is 70 per M* who assigns “Narrow” Economic Moat, gives a “Standard” rating for Capital Allocation, and gives an A grade for Financial Health (per BI website). VL gives an A+ grade for Financial Strength.

With regard to sales growth:

• YF projects YOY 6.8% and 4.5% for ’25 and ’26, respectively (based on 18 analysts).
• Zacks projects YOY 6.1% and 4.8% for ’25 and ’26, respectively (5 analysts).
• VL projects 5.3% annualized growth from ’24-’29.
• CFRA projects 6.9% YOY and 5.4% per year for ’25 and ’24-’26.
• M* provides a 2-year CAGR of 5.7% and projects 5-year annualized growth of 5.0% in its analyst note.

My 4.0% per year forecast is below the range.

With regard to EPS growth:

• MarketWatch projects annualized growth of 9.4% and 9.1% for ’24-’26 and ’24-’27, respectively (based on 29 analysts).
• Nasdaq.com projects 5.4% YOY and 7.2% per year for ’26 and ’25-’27 [1 / 6 / 4 analyst(s) for ’25 / ’26 / ’27].
• Seeking Alpha projects 4-year annualized growth of 8.8%.
• Argus projects 5-year annualized growth of 10.0%.
• Finviz gives ACE 5-year annualized growth of 8.6% (8).
• LSEG gives LTG estimate of 8.7%.
• YF projects YOY 8.6% and 8.5% for ’25 and ’26 (27).
• Zacks projects YOY 8.6% and 6.8% for ’25 and ’26 (6) along with 5-year annualized growth of 9.3%.
• VL projects 8.8% annualized growth from ’24-’29.
• CFRA projects 10.3% YOY and 7.1% per year for ’25 and ’24-’26 along with a 3-year CAGR of 6.0%.
• M* projects long-term annualized growth of 10.1%.

My 6.0% forecast is below the long-term-estimate range (mean of seven: 9.2%). Initial value will be ’24 EPS of $4.51/share rather than 2025 Q2 EPS of $4.92 (annualized).

My Forecast High P/E is 18.0. Over the past 10 years, high P/E trends down from 26.3 (’15) to 18.3 (’24) with a last-5-year mean of 22.4 and a last-5-year-mean average P/E of 18.3. I am below the range.

My Forecast Low P/E is 12.0. Over the past 10 years, low P/E trends down from 19.1 (’15) to 14.1 (’24) with a last-5-year mean of 14.2. I am forecasting near bottom of the range [only ’22 is less (11.6)].

My Low Stock Price Forecast (LSPF) of $54.10 is default based on initial value given above. That is 24.5% less than the previous close and 17.0% less than the 52-week low.

Since a dividend is first issued in 2017, Payout Ratio (PR) ranges from 17.8% in ’17 to 34.2% in ’20 with a last-5-year mean of 26.3%. I am forecasting below the range at 17.0%.

These inputs land CTSH in the HOLD zone with a U/D ratio of 2.1. Total Annualized Return (TAR) is 9.6%.

PAR (using Forecast Average—not High—P/E) of 5.9% is less than I seek in a large-size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 73 studies done in the past 90 days (my study and 30 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 5.3%, 7.4%, 19.9, 13.9, and 26.1%. I am lower across the board. VL projects a future average annual P/E of 17.0, which is greater than MS (16.9) and greater than mine (15.0).

MS high / low EPS are $6.89 / $4.62 versus my $6.04 / $4.51 (per share). My high EPS is less due to a lower growth rate. VL’s high EPS is greatest at $7.25.

MS LSPF of $56.50 implies a Forecast Low P/E of 12.2 versus the above-stated 13.9. MS LSPF is 12.0% less than the default $4.62/share * 13.9 = $64.22, which results in more conservative zoning. MS LSPF remains 4.4% greater than mine.

I think MOS is solid in the study because my inputs are near or below analyst/MS estimates and historical ranges. In support is MS TAR (16.0%) exceeding mine by 6.4% per year.

With regard to valuation, PEG is 1.4 and 2.3 per Zacks and my projected P/E, respectively: slightly overvalued (1.68 per M*). Relative Value [(current P/E) / 5-year-mean average P/E] is somewhat cheap at 0.80.

Per U/D, CTSH is a BUY under $67.80/share. BI TAR criterion is met [108.7 / ((13.97 / 100 ) +1 ) ^ 5] ~ $56.50 with a forecast high price ~$109.

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