Cognizant Technology Has Momentum For Continued Outperformance, Says Argus' Kelleher

Cognizant Technology Solutions Corp CTSH has seen its stock rise 15 percent since the start of 2018 on the heels of a 27-percent jump in 2017, and both figures outperform the computing, information processing and storage peer group.

Cognizant's fundamentals imply the potential for continued outperformance, according to Wall Street's newest bull said.

The Analyst

Argus' Jim Kelleher upgraded Cognizant Technology Solutions' stock from Hold to Buy with a 12-month price target of $100, with the analyst projecting upside potential in the $120s range.

The Thesis

Cognizant is well-positioned to deliver top-line growth that can drive stronger bottom-line growth over time, as it is operating within the "highly favorable" technology services sector, Kelleher said in the upgrade note. (See the analyst's track record here.) 

After many years of legacy technology companies asserting dominance, a newer generation of cloud and internet giants like Facebook arose. But Cognizant is looking elsewhere and focused on "another new generation" of leaders in non-technology areas that are becoming "digital heavyweights," the analyst said. 

These leaders need to combine their respective industry expertise with powerful technologies like analytics, automation and IoT, Kelleher said. This creates a new "industrial with digital" premise and represents an "accelerating opportunity" for Cognizant, he said. 

Looking to the full year, management's guidance for a top-line growth rate of 8 to 10 percent, 21 percent non-GAAP operating margin and non-GAAP EPS growth of nearly 20 percent are all "ambitious but attainable" goals, Kelleher said. 

Price Action

Shares of Cognizant Technology were trading higher by 0.17  percent at $81.94 Thursday afternoon. 

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