Market Overview

KeyBanc Downgrades Cognizant: 3 Reasons Why

Share:
KeyBanc Downgrades Cognizant: 3 Reasons Why

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

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.

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.

Related Links:

Is India's 7.3% Growth Worth An Investment?

Infosys Earnings Preview

Latest Ratings for CTSH

DateFirmActionFromTo
Aug 2019DowngradesNeutralSell
Jul 2019DowngradesBuyHold
May 2019DowngradesBuyHold

View More Analyst Ratings for CTSH
View the Latest Analyst Ratings

Posted-In: Arvind Ramnani KeyBanc Capital MarketsAnalyst Color Earnings News Guidance Downgrades Analyst Ratings Best of Benzinga

 

Related Articles (CTSH)

View Comments and Join the Discussion!

Green Light For $175 Million Gas Import Terminal

ArcBest First Quarter Results Come In Below Analysts Estimates