CTSH Financial Analysis

Analysis Date: 2/6/2025

Business Model

Cognizant generates revenue by providing IT services across various segments and geographies. Their revenue streams are diversified across North America, Europe, and Rest of World, and segments including Financial Services, Health Sciences, Products & Resources, and Communications, Media & Technology. Revenue growth is also driven by strategic acquisitions.

Revenue Sources

• IT Services across various industries
• Revenue from recently completed acquisitions (Belcan and Thirdera) contributed to year-over-year growth.

Income Statement Analysis

• Revenue increased by 6.8% year-over-year, indicating a strong growth trajectory compared to previous periods.
• Adjusted Operating Margin slightly decreased to 15.7% from 16.1%, but remains strong.
• Adjusted Diluted EPS increased by 2.5%, showing improvement in profitability on a per-share basis.

Balance Sheet Analysis

• Cash and Short-Term Investments decreased by 14.9% compared to Q4 2023.
• Total Debt increased significantly by 42.1% compared to Q4 2023, potentially due to acquisitions or financing activities.

Capital Allocation

Cognizant is focused on returning capital to shareholders through dividends and share repurchases, while also strategically investing in acquisitions to strengthen capabilities and support growth. In FY 2024, they returned $1.2 billion to shareholders and invested $1.6 billion in acquisitions. For 2025, they plan to continue balancing shareholder returns with inorganic growth investments and expect to return approximately $1.2 billion to shareholders.

Management Commentary

We exited the year with momentum — closing a record 29 large deals during the year — highlighting the effectiveness of our strategy.

We ended the year strong, delivering Adjusted Operating Margin of 15.7% in the fourth quarter and 20 basis points expansion for the full year, above our guidance.

Free cash flow represented more than 150% of net income, our highest quarter since Q3 2021.

Our initial 2025 guidance calls for 3.5% to 6.0% constant currency revenue growth and 20 to 40 basis points of full-year Adjusted Operating Margin expansion.

Overall Sentiment: Positive. Management expresses confidence in the company's strategic direction, operational improvements, and growth prospects, particularly highlighting strong deal momentum and margin expansion. They are optimistic about 2025 guidance and the benefits of AI and strategic acquisitions.

Recommendation

Rating: Buy

Reason for Rating: Based on strong Q4 2024 performance, positive management outlook, and improved financial metrics, a Buy recommendation is warranted. Cognizant demonstrates revenue growth acceleration, solid cash flow generation, and a commitment to shareholder returns. Strategic acquisitions and investments in AI position the company well for future growth.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/6/2025, 10:11:48 AM