Nomura Securities Downgrades Cognizant Technology Solutions (CTSH) to Neutral
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Nomura Securities downgraded Cognizant Technology Solutions (NASDAQ: CTSH) from Buy to Neutral with a price target of $62.00 (from $65.00).
Analyst Ashwin Mehta commented, "CTSH cut its FY16F revenue growth guidance for the second time in two quarters to 8.5-9.5% (vs 10-14% in 1Q and 10-13% in 2Q), citing: 1) pullback in discretionary spend, Brexit impacts and pressure at banks/insurance clients amid the low interest regime; 2) slowdown in healthcare demand due to a lull in activity ahead of pending large M&As; and 3) demand issues at a handful of clients in other verticals. Stock upside appears limited given: 1) issues in 70% of the business (BFSI + healthcare), 2) weak 4QFY16 exit growth of ~9% y-y, which is likely to limit outperformance in FY16F and material acceleration in FY17F, and 3) the stock looks fairly valued at 18.4x FY17F EPS for FY15-17F revenue/EPS CAGRs of 10%/11%, with the growth gap vs peers narrowing. We believe the case for a material premium to Indian IT peers is weakening as growth converges with lower margins/return ratios and cash returns."
Shares of Cognizant Technology Solutions closed at $59.71 yesterday.
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