Cognizant Earnings: Large Deal Momentum Drives Top-Line Growth

Key Morningstar Metrics for Cognizant Technology Solutions

• Fair Value Estimate: $84.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of Cognizant Technology Solutions’ Earnings

Cognizant Technology Solutions CTSH reported mixed fourth-quarter earnings that beat our top-line expectations but missed our bottom-line forecasts. Strong momentum in large deals and AI-related bookings drove robust top-line growth, but increased compensation expenses pressured margins. Management’s fiscal 2025 first-quarter guidance suggests revenue growth of 5.6%-7.1%, with an adjusted operating margin of 15.5%-15.7%.

We have reduced our fair value estimate to $84 per share from $94 as we revise our expectations and transfer coverage to a new analyst. Our long-term outlook reflects a more cautious view of Cognizant’s ability to capitalize on the surge in demand for digital transformation services. While we anticipate some benefit to top-line growth from this demand, competition from incumbents like Accenture ACN with stronger consulting businesses will likely strain Cognizant’s market share gains. Following the earnings release, shares fell 2% after hours. We view the stock as fairly valued.

Fourth-quarter revenue grew by 6.7% year over year in constant currency to $5.1 billion. Growth was led by the product and resources and health sciences verticals, which rose 11% and 10%, respectively, year over year in constant currency. Acquisitions contributed 450 basis points to revenue growth. Financial services continued to be a bright spot, growing 3% year over year, driven by demand for cloud services. We expect inorganic growth to continue bolstering top-line growth throughout fiscal 2025. Over the long run, we expect demand for digital transformation services, supported by gradual growth in Cognizant’s consulting business, to drive broad-based revenue growth across all verticals.