Bank Of America Cuts Cognizant's Price Target From $66 To $48

Bank of America Merrill Lynch downgraded Cognizant Technology Solutions Corp CTSH to Underperform from Buy, citing risks around potential changes to the H-1B visa program and a slower growth profile.

Analyst David Ridley-Lane noted that negative sentiment over H-1B visas remains the key risk to the stock as President-elect Trump’s immigration plan specifically mentioned raising H-1B wages and giving priority to US citizens for jobs.

“We argue investor sentiment would move well ahead of potential legislative change. Key influencers in Trump’s transition team have been vocal critics of H-1B visas,” Ridley-Lane wrote in a note.

On the fundamental front, the analyst sees limited prospects for revenue reacceleration in 2017 as SaaS adoption is hurting the company’s application maintenance work (estimated at 25 percent of revenue), while revenue growth at Cognizant’s largest clients has stalled.

The analyst pointed out that the third quarter 2016 was the first time in Cognizant’s public history that organic, constant currency revenue growth fell below 10 percent.

Cognizant is already reeling under the resignation of President Gordon Coburn and a probe into certain potentially improper payments related to facilities in India.

Ridley-Lane also slashed the price objective to $48 from $66, saying “valuation cheap relative to history, not relative to growth.”

Shares of Teaneck, New Jersey-based Cognizant fell 3.76 percent to $53.03.