Cognizant (CTS) Q3 FY 2011 - 2012 Result and Valuation Analysis



Cognizant Technology Solutions (CTSH:US) reported 31.6% YoY growth in revenue at $1.601 billion in Q3 of current fiscal vs Q3 of last fiscal. Sequentially the revenue was up 7.8% in comparison to Q2 of current fiscal. GAAP net income came in at $227.1 million in 2011 vs $203.7 million in 2010. Fully diluted EPS stands at $0.73 for the current quarter.
 
Cognizant is expecting Q4 revenue at $1.66 billion and full year revenue at $6.11 billion, a growth of around 33% compared to last year. The company expects current fiscal EPS at $2.88 on GAAP basis.
 
Valuation:
The stock reacted a bit negatively to the result and fell around 2% in the morning trade as the company could not beat the market expectations. The stock was trading at $69.60 per share. At the current market price the stock is trading at a PE multiple of 24.2 based on the expected EPS of $2.88 for the current fiscal. The PEG ratio is around 0.8 (less than 1) which make the stock relatively cheap in spite of moderately high PE of 24.

The stock can be accumulated on dips for a 1 year target of $90. The target is based on the assumption that cognizant will achieve an EPS of at least $3.70 to $3.80 in Fiscal 2012.



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