Tech Services Stock Moves Higher

Cognizant Technology Solutions (CTSH) is trading up today after reporting higher-than-expected third-quarter earnings and announcing a major restructuring.

Sales were up more than 5.1% in constant currency, above the high end of management’s guidance, and earnings per share (EPS) of $1.08 vs. $1.05 was $0.03 better than expectations. In addition, the company announced it was leaving the media content business and reducing its headcount, resulting in a $150 million to $200 million charge.

However, the savings from these actions will be significant, reaching $500 million to $550 million by 2021, which the company will reinvest in digital offerings and other growth initiatives. The company’s management believes operating margins will be flat next year compared to this year, but expects meaningful improvement in profitability in 2021.

CTSH remains a work in progress under new CEO Brian Humphries, but I firmly feel he is on the right track and CTSH remains significantly undervalued at just over 15x forward EPS estimates. The stock is still a buy below $65. My target remains $79.