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On Thursday, Susquehanna analyst James Friedman upgraded Cognizant Technology Solutions (NASDAQ:CTSH), a $36 billion IT services giant, from a Neutral to a Positive rating, with a revised price target of $90.00, up from the previous target of $77.00. The upgrade follows Cognizant’s performance which surpassed industry expectations and marked a departure from its prior challenges. According to InvestingPro analysis, the company maintains a "GOOD" financial health score, suggesting strong operational fundamentals.
Friedman noted that Cognizant has had a strong start to the year 2025, attributing the success to several factors. A consistent rise in revenue per utilized headcount, which has increased by approximately 6% for the second quarter in a row, was highlighted as a key driver. This improvement has been aided by gains in automation productivity, contributing to the company’s impressive $19.74 billion in annual revenue and a healthy 34.3% gross profit margin.
Additionally, the company has begun to realize the benefits from deals that had been announced earlier. These agreements are now starting to contribute to the company’s financial growth. The analyst also pointed out early signs that Cognizant’s achievements in the Health Science sector could potentially be replicated in other areas such as Banking, Financial Services, and Communications and Media Technology (BFS and CMT). The company’s strong execution is reflected in its consistent dividend growth, having raised dividends for five consecutive years.
Despite the backdrop of heightened macroeconomic uncertainty, Cognizant has been able to raise its guidance, indicating a positive outlook. Friedman’s decision to upgrade the stock rating and raise the price target is based on the company’s revenue outperformance and what he perceives as a modest valuation multiple relative to this growth. InvestingPro analysis suggests the stock is currently undervalued, with additional insights and a comprehensive Pro Research Report available for deeper analysis of this prominent IT Services player.
In other recent news, Cognizant Technology Solutions reported a strong start to 2025, exceeding earnings expectations with an earnings per share (EPS) of $1.23, compared to the projected $1.20. Revenue for the first quarter reached $5.1 billion, slightly above the anticipated $5.06 billion, marking an 8.2% year-over-year growth in constant currency. The company also provided an optimistic outlook for the second quarter and increased its full-year 2025 guidance, reflecting favorable foreign exchange impacts. Despite these positive results, Needham analysts maintained a Hold rating on Cognizant, expressing caution about near-term growth due to decreased bookings and global macroeconomic uncertainties. Cognizant’s management noted a slowdown in client decision-making and discretionary IT spending, attributing it to these uncertainties. The company plans significant shareholder returns, totaling $1.7 billion for the year, and continues to focus on AI-driven productivity and strategic investments. Additionally, Cognizant deepened its partnership with NVIDIA (NASDAQ:NVDA) to enhance AI adoption across various sectors.
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