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Cognizant Technology Solutions Corp (NASDAQ:CTSH) reported Thursday after the close with below-consensus first-quarter revenue and reduced its full-year guidance, citing weakness in the financial and health care verticals.
The Analyst
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KeyBanc Capital Markets analyst Arvind Ramnani downgraded Cognizant from Overweight to Sector Weight.
The Thesis
Cognizant's disappointing first-quarter results boiled down to weakness in financial services and health care clients and margin pressure, Ramnani said in a Thursday note. (See his track record here.)
The magnitude of downward revision to full-year revenue guidance is material, with the outlook assuming 2.7-percent organic growth in constant currency compared to the 6.5-percent growth estimated earlier, the analyst said.
Downward revisions to Cognizant's long-term targets are likely, Ramnani said.
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The analyst attributed the downgrade to three factors:
- Weakness in financial services, which accounts for 35 percent of total revenue, and health care, which accounts for 28 percent of revenues, persisting in the near-to-medium term.
- Lack of clarity and a time frame for revised long-term targets.
- Potential incremental senior-level changes expected over the next two to three quarters, weighing on the stock.
On a positive note, KeyBanc said the lowered targets could be conservative and set the company up for a "beat-and-raise" cadence. The research firm also sees the possibility of recovery in some large accounts.
The Price Action
In pre-market trading Friday, Cognizant shares were sliding 7.73 percent to $61.46.
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Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.