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
Nov 2020Goldman SachsInitiates Coverage OnBuy
Oct 2020Deutsche BankMaintainsHold
Oct 2020BMO CapitalMaintainsOutperform

View More Analyst Ratings for CTSH
View the Latest Analyst Ratings

 

Related Articles (CTSH)

View Comments and Join the Discussion!

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

Latest Ratings

StockFirmActionPT
TWSTSVB LeerinkMaintains100.0
ARWRSVB LeerinkMaintains34.0
ALNYSVB LeerinkMaintains91.0
ASVB LeerinkMaintains120.0
LUKeyBancInitiates Coverage On
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