Cognizant Up 13% in a Year: Should You Buy, Retain or Sell the Stock?

Core Viewpoint - Cognizant Technology Solutions (CTSH) has experienced a 13.1% share price increase over the past year, underperforming compared to the Zacks Business - Software Services industry's growth of 29.2% and the broader Zacks Computer & Technology sector's return of 37.1% [1] Financial Performance - In Q2 2024, Cognizant reported revenues of $4.85 billion, reflecting a year-over-year decline of 0.7% and a 0.5% decline at constant currency [1] - Financial Services revenues decreased by 1.1% year-over-year to $1.447 billion during the same period [1] - For Q3 2024, Cognizant expects revenues to be between $4.89 billion and $4.96 billion, indicating a potential decline of 0.2% to an increase of 1.3% [4] Partnerships and Contracts - Cognizant's expanding partner base includes major companies like Microsoft, Gentherm, Alphabet's Google Cloud, and Victory Capital Holdings [2] - In Q2 2024, Cognizant secured five large contracts, each valued at $100 million or more, and completed 13 similar deals in the first half of 2024, significantly surpassing 2023 levels [2] - A five-year strategic agreement was signed with Victory Capital Holdings to provide IT infrastructure and support for digital transformation [3] Innovation and Technology - Cognizant launched its first set of healthcare large language model solutions utilizing Google Cloud's generative AI technology, targeting high-cost workflows in various operations [2] - The company is collaborating with Microsoft to leverage generative AI and Copilot for innovation across industries [3] - A transformative partnership with mecwacare aims to enhance healthcare services through an integrated platform powered by Salesforce and Workday [3] Market Outlook - Despite a strong portfolio and expanding partner base, Cognizant anticipates that the challenging macro environment will negatively impact spending in the Financial Services segment [4] - The Zacks Consensus Estimate for Q3 revenues is pegged at $5 billion, indicating year-over-year growth of 2.17% [4] - The consensus mark for earnings is $1.15 per share, reflecting a year-over-year decline of 0.86% [4] Valuation Metrics - Cognizant's shares are considered cheap, with a Value Score of B [5] - The forward 12-month Price/Sales ratio for CTSH is 1.99, significantly lower than the industry's 11.56 [6] - The company currently holds a Zacks Rank 3 (Hold), suggesting a cautious approach for potential investors [6]