Market Overview

The Selloff In Cognizant Following Last Week's Shocking Announcements May Be Overdone

Share:
The Selloff In Cognizant Following Last Week's Shocking Announcements May Be Overdone

Morgan Stanley believes the selloff in Cognizant Technology Solutions Corp (NASDAQ: CTSH) shares has been overdone; therefore, the firm remains Overweight on the company, citing a better outlook and positive catalysts in 2017.

Cognizant recently announced the resignation of President Gordon Coburn and a probe into certain potentially improper payments related to facilities in India.

Related Link: Cognizant's Surprise Announcements Leave Investors Scratching Their Heads; $50 Level Attractive

"While the FCPA issue is a serious one, it may not be as big of a problem as some assume. Our review of precedent FCPA cases implies that CTSH's actions may set the company up well for a better than expected outcome," analyst Brian Essex wrote in a note.

While the analyst is concerned with the resignation of Gordon is concerning, he doesn't see as a substantial headwind given the depth of Cognizant's executive team.

Apart from the above development, Essex believes the selloff is also related to a guidance cut on the second quarter earnings call as well as cautious commentary year-to-date.

Catalysts Ahead

Among the various catalysts, Essex sees Cognizant as possibly seeing a benefit from relief of healthcare customer driven pause in spending.

"These customers accounted for approximately 4% of total revenue in 2015. With court dates set during 4Q16, we anticipate resolution could come as early as 1Q17 with a spending recovery shortly thereafter," Essex continued.

The analyst sees better spending intentions could see supportive 2017 guidance as data from Morgan Stanley's most recent chief information officer survey points to an improving IT services spending environment for financial services in 2017.

Essex also M&A and share repurchases could drive reported numbers higher as Cognizant repatriated $2.6 billion in cash from India, and out of that $1 billion was pulled into the U.S. providing excess capital for greater levels of M&A and repurchases.

However, the analyst cut the price target to $61 from $66 due to near-term budget weakness.

At time of writing, shares of Cognizant fell 1.52 percent to $50.43.

Full ratings data available on Benzinga Pro.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!

Latest Ratings for CTSH

DateFirmActionFromTo
Jan 2021William BlairUpgradesMarket PerformOutperform
Dec 2020Credit SuisseMaintainsOutperform
Dec 2020JP MorganUpgradesNeutralOverweight

View More Analyst Ratings for CTSH
View the Latest Analyst Ratings

 

Related Articles (CTSH)

View Comments and Join the Discussion!

Posted-In: Analyst Color Long Ideas News Price Target Reiteration Analyst Ratings Movers Tech Best of Benzinga

Latest Ratings

StockFirmActionPT
JNJCantor FitzgeraldMaintains200.0
PCTYJMP SecuritiesMaintains220.0
ADIBarclaysMaintains170.0
AMATBarclaysMaintains115.0
KMBRBC CapitalMaintains147.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com