Cognizant Technology downgraded at MS on 'in-line' fundamentals
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Cognizant Technology Solutions (NASDAQ:CTSH) is being downgraded to equal-weight at Morgan Stanley, as the investment firm believes the fundamentals of the Teaneck, New Jersey-based IT company are "largely in-line" with the broader industry, though it is dealing with "elevated attrition."
Analyst James Faucette lowered his rating, but raised his price target, to $95, from $91, noting that he believes growth will be "consistent" with elevated demand in industry and he is encouraged by changes Cognizant Technology Solutions (CTSH) management has made in its turnaround, particularly with its pace of acquisitions and "improved client momentum." He expects these events to remain in place this year, with "gradual improvements" in win rates, increased investments and price hikes to fuel growth of more than 10.5% year-over-year.
"As such, we are downgrading CTSH to Equal-weight on a relative basis as the company will likely continue benefitting from a strong demand environment in-line with the broader industry, while also needing to balance the attrition-driven 'wall of worry' that is likely to remain through CY22," Faucette wrote in a note to investors. "Should attrition meaningfully improve for CTSH, we see potential for multiple expansion as outlined in our Bull Case scenario."
Cognizant Technology Solutions (CTSH) shares are down nearly 2% to $85.94 in pre-market trading.
"We continue to be encouraged by [Cognizant Technology Solutions] continued progress around acquisitions, core platform partnerships, and globalization of delivery footprint, and expect CTSH to be able to capture its share of elevated demand in the market, but we still see CTSHâs elevated attrition as the âwall of worryâ that investors must climb in order for shares to re-rate higher, leaving us Equal- weight," Faucette added.
Earlier this month, Cognizant Technology Solutions (CTSH) said it signed a deal with Reliq Health (OTCPK:RQHTF) to expand care management capabilities.