On Tuesday, Deutsche Bank maintained its Hold rating on Cognizant Technology Solutions (NASDAQ:CTSH) stock, with a consistent price target of $70.00.
The decision follows a discussion with Surya Gummadi, EVP and President of Cognizant Americas, at the Deutsche Bank Technology Conference, where industry challenges and the company's strategic direction were examined.
The bank highlighted the improvements under CEO Ravi's leadership, noting advancements in internal culture, particularly at the mid-level, a focus on securing large deals, and boosts in client Net Promoter Scores (NPR) and employee morale.
Despite these positive changes, the IT Services sector, including Cognizant, is experiencing a slowdown in discretionary spending demand, which is estimated to make up 25%-30% of the business.
Cognizant's growth in the past year has been primarily driven by larger deals, with an emphasis on cost reduction and vendor consolidation. However, Deutsche Bank suggests that the expansion from these large deals may be decelerating compared to the previous year's pace. The bank is keeping an eye on Cognizant's path toward achieving sustainable growth, which is estimated to be in the mid to high single-digit revenue growth range.
In light of the recently completed acquisition of Belcan, Deutsche Bank has updated its earnings estimates for Cognizant. The firm has lowered its FY24 earnings per share (EPS) forecast by $0.05 to $4.63, while maintaining its FY25 EPS projection and increasing its FY26 EPS estimate by $0.05 to $5.52. The bank's stance remains cautious as it continues to monitor Cognizant's progress in a challenging market environment.
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