BofA Securities hikes Cognizant PT, keeps Neutral amid post-acquisition adjustments

On Wednesday, BofA Securities updated its outlook on Cognizant Technology Solutions (NASDAQ:CTSH), increasing the stock's price target from $75.00 to $78.00 while keeping a Neutral rating on the shares. The adjustment follows Cognizant's revised projections post the acquisition of Belcan, which recently concluded.

The analyst from BofA Securities adjusted the financial forecasts for Cognizant for fiscal year 2024, with revenue now expected to reach $19,644 million and adjusted earnings per share (EPS) projected at $4.60.

These figures have been revised from the previous estimates of $19,397 million in revenue and an adjusted EPS of $4.66. The new price objective is based on a 15.5 times price-to-earnings (P/E) ratio for calendar year 2025, up from the former 15.0 times, alongside discounted cash flow (DCF) analysis.

The rationale behind the price target increase is tied to the valuation multiple, which now reflects a 25% discount to the S&P 500, consistent with the previous assessment. This discount is deemed appropriate given Cognizant's revenue and EPS growth profile. The DCF model used by the analyst includes a weighted average cost of capital (WACC) of 9.1%, slightly down from the previous 9.2%, and a terminal growth rate set at 2%.

The Neutral rating reiterated by BofA Securities suggests that the firm's analysts believe the stock is fairly valued at its current price, considering the company's financial outlook and market position. The updated guidance and subsequent changes in the financial model reflect the immediate impact of the Belcan acquisition on Cognizant's business projections.

In other recent news, Cognizant Technology Solutions has made significant strides with its recent financial performance and strategic acquisitions. The company's second quarter of 2024 results surpassed expectations, reporting a revenue of $4.85 billion and an adjusted operating margin of 15.2%. This robust performance led to an upward revision of its full-year 2024 guidance.

Cognizant completed its acquisition of Belcan, a global supplier of engineering research and development services, for approximately $1.3 billion. This strategic move is expected to enhance Cognizant's engineering capabilities and expand its presence in the high-growth aerospace and defense services market.

Analyst firms have made notable adjustments to their assessments of Cognizant. TD Cowen maintained its Hold rating on Cognizant shares, with a consistent price target of $72, and later increased the price target to $74 following the closure of Cognizant's acquisition of Belcan.

BofA Securities upgraded Cognizant's shares from Underperform to Neutral, lifting the price target to $75.00, reflecting the firm's recognition of Cognizant's enhanced competitive position.

InvestingPro Insights

The latest update from BofA Securities on Cognizant Technology Solutions (NASDAQ:CTSH) has been complemented by real-time data and insights from InvestingPro. Cognizant boasts a solid market capitalization of $38.24 billion, reflecting its significant presence in the IT services industry. The company's P/E ratio stands at 17.56, indicating a premium valuation relative to near-term earnings growth. Despite a slight decline in revenue over the last twelve months, the company maintains a healthy gross profit margin of 34.39%. Additionally, Cognizant's ability to raise its dividend for four consecutive years, coupled with a current dividend yield of 1.56%, demonstrates its commitment to shareholder returns.

InvestingPro Tips highlight that Cognizant is trading near its 52-week high, suggesting strong market confidence, which is supported by a robust return over the last three months of 15.85%. Moreover, the company is recognized for its low price volatility and its capacity to sufficiently cover interest payments with cash flows. With 11 more InvestingPro Tips available, investors can delve deeper into Cognizant's financial health and market position by visiting https://www.investing.com/pro/CTSH for comprehensive analysis and additional insights.

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