Cognizant Technology Solutions Corp Valuation – January 2019 $CTSH

Company Profile (excerpt from Reuters): Cognizant Technology Solutions Corporation, incorporated on April 6, 1988, is a professional services company. The Company operates through four segments: Financial Services, Healthcare, Manufacturing/Retail/Logistics, and Other. The Company’s services include consulting and technology services and outsourcing services. Its consulting and technology services include business, process, operations and technology consulting, application development and systems integrations, application testing, enterprise information management and software solutions and related services. Its outsourcing services include application maintenance, IT infrastructure services and business process services. The Company deploys a range of commercial and delivery models, including managed services, fixed bid, output and outcome based pricing and platforms to address the various needs of its customers.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CTSH – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $39,333,372,216 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.24 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 146.00% Pass
6. Moderate PEmg Ratio PEmg < 20 23.65 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.59 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.24 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.10 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.87
MG Growth Estimate 7.26%
MG Value $66.09
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $41.63
MG Value based on 0% Growth $24.41
Market Implied Growth Rate 7.58%
Current Price $67.92
% of Intrinsic Value 102.77%

Cognizant Technology Solutions Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.94 in 2014 to an estimated $2.87 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 7.58% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Cognizant Technology Solutions Corp revealed the company was trading above its Graham Number of $37.96. The company pays a dividend of $0.45 per share, for a yield of 0.7% Its PEmg (price over earnings per share – ModernGraham) was 23.65, which was below the industry average of 44.74, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $7.64.

Cognizant Technology Solutions Corp receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $7.64
Graham Number $37.96
PEmg 23.65
Current Ratio 3.24
PB Ratio 3.59
Current Dividend $0.45
Dividend Yield 0.66%
Number of Consecutive Years of Dividend Growth 1

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $8,727,000,000
Total Current Liabilities $2,693,000,000
Long-Term Debt $624,000,000
Total Assets $15,274,000,000
Intangible Assets $4,058,000,000
Total Liabilities $4,296,000,000
Shares Outstanding (Diluted Average) 580,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.53
Dec2017 $2.53
Dec2016 $2.55
Dec2015 $2.65
Dec2014 $2.35
Dec2013 $2.02
Dec2012 $1.72
Dec2011 $1.43
Dec2010 $1.19
Dec2009 $0.89
Dec2008 $0.72
Dec2007 $0.58
Dec2006 $0.39
Dec2005 $0.28
Dec2004 $0.18
Dec2003 $0.11
Dec2002 $0.07
Dec2001 $0.05
Dec2000 $0.04
Dec1999 $0.02
Dec1998 $0.03

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.87
Dec2017 $2.50
Dec2016 $2.41
Dec2015 $2.24
Dec2014 $1.94
Dec2013 $1.63
Dec2012 $1.36
Dec2011 $1.10
Dec2010 $0.88
Dec2009 $0.67
Dec2008 $0.52
Dec2007 $0.38
Dec2006 $0.26
Dec2005 $0.17
Dec2004 $0.11
Dec2003 $0.07
Dec2002 $0.05

Recommended Reading:

Other ModernGraham posts about the company

Cognizant Technology Solutions Corp – March 2018 $CTSH
12 Best Stocks For Value Investors This Week – 7/1/16
Cognizant Technology Solutions Corp Valuation – July 2016 $CTSH
18 Best Stocks For Value Investors This Week – 1/30/16
Cognizant Technology Solutions Corp Valuation – January 2016 Update $CTSH

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cognizant Technology Solutions Corp – March 2018 $CTSH

Company Profile (excerpt from Reuters): Cognizant Technology Solutions Corporation, incorporated on April 6, 1988, is a professional services company. The Company operates through four segments: Financial Services, Healthcare, Manufacturing/Retail/Logistics, and Other. The Company’s services include consulting and technology services and outsourcing services. Its consulting and technology services include business, process, operations and technology consulting, application development and systems integrations, application testing, enterprise information management and software solutions and related services. Its outsourcing services include application maintenance, IT infrastructure services and business process services. The Company deploys a range of commercial and delivery models, including managed services, fixed bid, output and outcome based pricing and platforms to address the various needs of its customers.

CTSH Chart

CTSH data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CTSH – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $49,284,578,017 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.21 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 168.00% Pass
6. Moderate PEmg Ratio PEmg < 20 26.79 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.65 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.21 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.11 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.13
MG Growth Estimate 9.25%
MG Value $84.44
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $45.36
MG Value based on 0% Growth $26.59
Market Implied Growth Rate 9.15%
Current Price $83.81
% of Intrinsic Value 99.25%

Cognizant Technology Solutions Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.94 in 2014 to an estimated $3.13 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 9.15% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Cognizant Technology Solutions Corp revealed the company was trading above its Graham Number of $41.9. The company pays a dividend of $0.45 per share, for a yield of 0.5% Its PEmg (price over earnings per share – ModernGraham) was 26.79, which was below the industry average of 43.34, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $7.7.

Cognizant Technology Solutions Corp receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $7.70
Graham Number $41.90
PEmg 26.79
Current Ratio 3.21
PB Ratio 4.65
Current Dividend $0.45
Dividend Yield 0.54%
Number of Consecutive Years of Dividend Growth 1

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $9,111,000,000
Total Current Liabilities $2,839,000,000
Long-Term Debt $698,000,000
Total Assets $15,221,000,000
Intangible Assets $3,685,000,000
Total Liabilities $4,552,000,000
Shares Outstanding (Diluted Average) 592,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.30
Dec2017 $2.53
Dec2016 $2.55
Dec2015 $2.65
Dec2014 $2.35
Dec2013 $2.02
Dec2012 $1.72
Dec2011 $1.43
Dec2010 $1.19
Dec2009 $0.89
Dec2008 $0.72
Dec2007 $0.58
Dec2006 $0.39
Dec2005 $0.28
Dec2004 $0.18
Dec2003 $0.11
Dec2002 $0.07
Dec2001 $0.05
Dec2000 $0.04
Dec1999 $0.02
Dec1998 $0.03

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.13
Dec2017 $2.50
Dec2016 $2.41
Dec2015 $2.24
Dec2014 $1.94
Dec2013 $1.63
Dec2012 $1.36
Dec2011 $1.10
Dec2010 $0.88
Dec2009 $0.67
Dec2008 $0.52
Dec2007 $0.38
Dec2006 $0.26
Dec2005 $0.17
Dec2004 $0.11
Dec2003 $0.07
Dec2002 $0.05

Recommended Reading:

Other ModernGraham posts about the company

18 Best Stocks For Value Investors This Week – 1/30/16
Cognizant Technology Solutions Corp Valuation – January 2016 Update $CTSH
8 Best Stocks For Value Investors This Week – 10/13/15
Cognizant Technology Solutions Corp Analysis – October 2015 Update $CTSH
The 20 Best Stocks For Value Investors This Week – 7/25/15

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cognizant Technology Solutions Corp Valuation – July 2016 $CTSH

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cognizant Technology Solutions Corp (CTSH) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cognizant Technology Solutions Corporation is a provider of information technology (IT), consulting and business process services. The Company operates through four segments: Financial Services, which includes customers providing banking/transaction processing, capital markets and insurance services; Healthcare, which includes healthcare providers and payers, as well as life sciences customers, including pharmaceutical, biotech and medical device companies; Manufacturing, Retail and Logistics, which includes manufacturers, retailers, travel and other hospitality customers, as well as customers providing logistics services, and Other, which includes communications, manufacturing/retail/logistics, and high technology. The Company’s competencies include business, process, operations and IT consulting, application development and systems integration, enterprise information management, application testing, application maintenance and IT infrastructure services.

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CTSH – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $35,354,992,291 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.69 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 278.95% Pass
6. Moderate PEmg Ratio PEmg < 20 21.57 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.64 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.69 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.16 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

CTSH value chart July 2016

EPSmg $2.65
MG Growth Estimate 14.33%
MG Value $98.59
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $38.47
MG Value based on 0% Growth $22.55
Market Implied Growth Rate 6.54%
Current Price $57.24
% of Intrinsic Value 58.06%

Cognizant Technology Solutions Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.36 in 2012 to an estimated $2.65 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.54% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Cognizant Technology Solutions Corp performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

CTSH charts July 2016

Net Current Asset Value (NCAV) $7.27
Graham Number $34.21
PEmg 21.57
Current Ratio 3.69
PB Ratio 3.64
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $7,570,900,000
Total Current Liabilities $2,050,400,000
Long-Term Debt $858,400,000
Total Assets $12,735,900,000
Intangible Assets $3,324,100,000
Total Liabilities $3,123,600,000
Shares Outstanding (Diluted Average) 611,800,000

Earnings Per Share History

Next Fiscal Year Estimate $3.28
Dec2015 $2.65
Dec2014 $2.35
Dec2013 $2.02
Dec2012 $1.72
Dec2011 $1.43
Dec2010 $1.19
Dec2009 $0.89
Dec2008 $0.72
Dec2007 $0.58
Dec2006 $0.39
Dec2005 $0.28
Dec2004 $0.18
Dec2003 $0.11
Dec2002 $0.07
Dec2001 $0.05
Dec2000 $0.04
Dec1999 $0.02
Dec1998 $0.02

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.65
Dec2015 $2.24
Dec2014 $1.93
Dec2013 $1.63
Dec2012 $1.36
Dec2011 $1.10
Dec2010 $0.88
Dec2009 $0.67
Dec2008 $0.52
Dec2007 $0.38
Dec2006 $0.26
Dec2005 $0.17
Dec2004 $0.11
Dec2003 $0.07
Dec2002 $0.05
Dec2001 $0.03
Dec2000 $0.02

Recommended Reading:

Other ModernGraham posts about the company

18 Best Stocks For Value Investors This Week – 1/30/16
Cognizant Technology Solutions Corp Valuation – January 2016 Update $CTSH
8 Best Stocks For Value Investors This Week – 10/13/15
Cognizant Technology Solutions Corp Analysis – October 2015 Update $CTSH
8 Best Stocks For Value Investors This Week – 10/13/15

Other ModernGraham posts about related companies

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Cognizant Technology Solutions Corp Valuation – January 2016 Update $CTSH
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Infosys Ltd Valuation – January 2016 Update $INFY
Motorola Solutions Inc Valuation – February 2016 Update $MSI
Cognizant Technology Solutions Corp Valuation – January 2016 Update $CTSH
Akamai Technologies Inc Valuation – January 2016 $AKAM
Infosys Ltd Valuation – January 2016 Update $INFY

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cognizant Technology Solutions Corp Valuation – January 2016 Update $CTSH

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cognizant Technology Solutions Corp (CTSH) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cognizant Technology Solutions Corporation is a provider of information technology (IT), consulting and business process services. The Company operates in four segments: Financial Services segment, which include banking and insurance; Healthcare segment, which includes healthcare and life sciences, and Manufacturing/Retail/Logistics segment, which includes manufacturing and logistics; retail, travel and hospitality, and consumer goods and Other segment, which includes Communications, Manufacturing/Retail/Logistics, and High Technology. The Companies competencies include business, process, operations and IT consulting, application development and systems integration, enterprise information management (EIM), application testing, application maintenance, IT infrastructure services (IT IS) and business process services (BPS). It provides a range of consulting, information technology and outsourcing services, including consulting and technology services, and outsourcing services.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of CTSH – January 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $37,055,992,602 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.40 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 318.89% Pass
6. Moderate PEmg Ratio PEmg < 20 27.28 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.26 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.40 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.18 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

CTSH value Chart January 2016

EPSmg $2.25
MG Growth Estimate 15.00%
MG Value $86.56
Opinion Undervalued
MG Value based on 3% Growth $32.60
MG Value based on 0% Growth $19.11
Market Implied Growth Rate 9.39%
Current Price $61.34
% of Intrinsic Value 70.86%

Cognizant Technology Solutions Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the lack of dividends along with the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.10 in 2011 to an estimated $2.25 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 9.39% annual earnings loss over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cognizant Technology Solutions Corp (CTSH)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CTSH Charts January 2016

Net Current Asset Value (NCAV) $6.20
Graham Number $29.59
PEmg 27.28
Current Ratio 3.40
PB Ratio 4.26
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $7,237,900,000
Total Current Liabilities $2,128,400,000
Long-Term Debt $900,000,000
Total Assets $12,267,600,000
Intangible Assets $3,285,000,000
Total Liabilities $3,440,600,000
Shares Outstanding (Diluted Average) 612,700,000

Earnings Per Share History

Next Fiscal Year Estimate $2.68
Dec2014 $2.35
Dec2013 $2.02
Dec2012 $1.72
Dec2011 $1.43
Dec2010 $1.19
Dec2009 $0.89
Dec2008 $0.72
Dec2007 $0.58
Dec2006 $0.39
Dec2005 $0.28
Dec2004 $0.18
Dec2003 $0.11
Dec2002 $0.07
Dec2001 $0.05
Dec2000 $0.04
Dec1999 $0.02
Dec1998 $0.03

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.25
Dec2014 $1.94
Dec2013 $1.63
Dec2012 $1.36
Dec2011 $1.10
Dec2010 $0.88
Dec2009 $0.67
Dec2008 $0.52
Dec2007 $0.38
Dec2006 $0.26
Dec2005 $0.17
Dec2004 $0.11
Dec2003 $0.07
Dec2002 $0.05
Dec2001 $0.03
Dec2000 $0.02
Dec1999 $0.02

Recommended Reading:

Other ModernGraham posts about the company

8 Best Stocks For Value Investors This Week – 10/13/15
The 20 Best Stocks For Value Investors This Week – 7/25/15
Cognizant Technology Solutions Corp Analysis – July 2015 Update $CTSH
27 Companies in the Spotlight This Week – 4/4/15
Cognizant Technology Solutions Corp Quarterly Valuation – March 2015 $CTSH

Other ModernGraham posts about related companies

Akamai Technologies Inc Valuation – January 2016 $AKAM
Infosys Ltd Valuation – January 2016 Update $INFY
Total System Services Inc. Valuation – November 2015 Update $TSS
International Business Machines Corp Valuation – November 2015 Update $IBM
Motorola Solutions Inc. Valuation – November 2015 Update $MSI
Qualcomm Inc. Valuation – October 2015 Update $QCOM
Cognizant Technology Solutions Corp Analysis – October 2015 Update $CTSH
Infosys Limited Analysis – October 2015 Update $INFY
Teradata Corporation Analysis – September 2015 Update $TDC
Akamai Technologies Inc. Analysis – August 2015 Update $AKAM

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cognizant Technology Solutions Corp Analysis – October 2015 Update $CTSH

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – September 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cognizant Technology Solutions Corp (CTSH) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cognizant Technology Solutions Corporation is a provider of information technology (IT), consulting and business process services. The Company operates in four segments: Financial Services segment, which include banking and insurance; Healthcare segment, which includes healthcare and life sciences, and Manufacturing/Retail/Logistics segment, which includes manufacturing and logistics; retail, travel and hospitality, and consumer goods and Other segment, which includes Communications, Manufacturing/Retail/Logistics, and High Technology. The Companies competencies include business, process, operations and IT consulting, application development and systems integration, enterprise information management (EIM), application testing, application maintenance, IT infrastructure services (IT IS) and business process services (BPS). It provides a range of consulting, information technology and outsourcing services, including consulting and technology services, and outsourcing services.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CTSH – October 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $40,698,264,574 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.46 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 326.02% Pass
6. Moderate PEmg Ratio PEmg < 20 29.18 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.80 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.46 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.19 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

CTSH value Chart October 2015

EPSmg $2.29
MG Growth Estimate 15.00%
MG Value $88.10
Opinion Fairly Valued
MG Value based on 3% Growth $33.18
MG Value based on 0% Growth $19.45
Market Implied Growth Rate 10.34%
Current Price $66.77
% of Intrinsic Value 75.79%

Cognizant Technology Solutions Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the lack of dividends and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned by the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.10 in 2011 to an estimated $2.29 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 10.34% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cognizant Technology Solutions Corp (CTSH)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CTSH Charts October 2015

Net Current Asset Value (NCAV) $5.73
Graham Number $29.71
PEmg 29.18
Current Ratio 3.46
PB Ratio 4.80
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $6,771,400,000
Total Current Liabilities $1,956,500,000
Long-Term Debt $912,500,000
Total Assets $11,797,600,000
Intangible Assets $3,311,400,000
Total Liabilities $3,256,800,000
Shares Outstanding (Diluted Average) 613,900,000

Earnings Per Share History

Next Fiscal Year Estimate $2.80
Dec14 $2.35
Dec13 $2.02
Dec12 $1.72
Dec11 $1.43
Dec10 $1.19
Dec09 $0.89
Dec08 $0.72
Dec07 $0.58
Dec06 $0.39
Dec05 $0.28
Dec04 $0.18
Dec03 $0.11
Dec02 $0.07
Dec01 $0.05
Dec00 $0.04
Dec99 $0.02
Dec98 $0.03

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.29
Dec14 $1.94
Dec13 $1.63
Dec12 $1.36
Dec11 $1.10
Dec10 $0.88
Dec09 $0.67
Dec08 $0.52
Dec07 $0.38
Dec06 $0.26
Dec05 $0.17
Dec04 $0.11
Dec03 $0.07
Dec02 $0.05
Dec01 $0.03
Dec00 $0.02
Dec99 $0.02

Recommended Reading:

Other ModernGraham posts about the company

The 20 Best Stocks For Value Investors This Week – 7/25/15
Cognizant Technology Solutions Corp Analysis – July 2015 Update $CTSH
27 Companies in the Spotlight This Week – 4/4/15
Cognizant Technology Solutions Corp Quarterly Valuation – March 2015 $CTSH
15 Companies in the Spotlight This Week – 12/27/14

Other ModernGraham posts about related companies

Infosys Limited Analysis – October 2015 Update $INFY
Teradata Corporation Analysis – September 2015 Update $TDC
Akamai Technologies Inc. Analysis – August 2015 Update $AKAM
Total System Services Inc. Analysis – August 2015 Update $TSS
Acxiom Corporation Analysis – Initial Coverage $ACXM
ACI Worldwide Inc. Analysis – Initial Coverage $ACIW
Motorola Solutions Inc. Analysis – July 2015 Update $MSI
Qualcomm Inc. Analysis – July 2015 Update $QCOM
Cognizant Technology Solutions Corp Analysis – July 2015 Update $CTSH
Equinix Inc. Analysis – Initial Coverage $EQIX

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cognizant Technology Solutions Corp Analysis – July 2015 Update $CTSH

139px-Cognizant_Logo.svg

Cognizant Technology Solutions passes the initial requirements of the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the lack of dividends, as well as the high PEmg and PB ratio. The Enterprising Investor is only initially concerned by the lack of dividends. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $1.11 in 2011 to an estimated $2.33 for 2015. This level of demonstrated growth outpaces the market’s implied estimate for annual earnings growth of 8.8% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 22% annually. The ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate but still returns an estimate of intrinsic value well above the current price, indicating that Cognizant Technology Solutions is undervalued at the present time.

Read the full valuation on Guru Focus!


Disclaimer: The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Cognizant Technology Solutions Corp Quarterly Valuation – March 2015 $CTSH

139px-Cognizant_Logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – March 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Cognizant Technology Solutions Corp (CTSH) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cognizant Technology Solutions Corporation is a provider of information technology (IT), consulting and business process services, dedicated to helping the world’s leading companies build stronger businesses. The Company operates in four segments: Financial Services; Healthcare; Manufacturing, Retail and Logistics and Other, which include Communications, Information, Media and Entertainment, and High Technology. The Company’s service area consists of Consulting and Technology Services and Outsourcing Services. The Company’s consulting and technology services include: business, process, operations and it consulting, application development and systems integration and application testing. The Company’s outsourcing services include: application maintenance, IT infrastructure services (IT IS), and business process services (BPS).

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $63.00
MG Value $74.54
MG Opinion Fairly Valued
Value Based on 3% Growth $28.07
Value Based on 0% Growth $16.46
Market Implied Growth Rate 12.02%
Net Current Asset Value (NCAV) $4.52
PEmg 32.54
Current Ratio 2.60
PB Ratio 4.99

Balance Sheet – December 2014

Current Assets $6,750,000,000
Current Liabilities $2,592,000,000
Total Debt $938,000,000
Total Assets $11,719,000,000
Intangible Assets $3,367,000,000
Total Liabilities $3,979,000,000
Outstanding Shares 612,800,000

Earnings Per Share

2014 $2.35
2013 $2.02
2012 $1.72
2011 $1.43
2010 $1.19
2009 $0.89
2008 $0.72
2007 $0.58
2006 $0.39
2005 $0.28
2004 $0.18

Earnings Per Share – ModernGraham

2014 $1.94
2013 $1.64
2012 $1.36
2011 $1.11
2010 $0.88
2009 $0.68

Dividend History
Cognizant Technology Solutions does not pay a dividend.

Conclusion:

Cognizant Technology Solutions Corp is suitable for the Enterprising Investor but not for the Defensive Investor.  The Defensive Investor is concerned by the lack of dividends and the high PEmg and PB ratios, while the Enterprising Investor is only concerned by the lack of dividends.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $0.88 in 2010 to $1.94 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 12.02% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cognizant Technology Solutions Corp (CTSH)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Cognizant Technology Solutions Corp (CTSH) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Cognizant Technology Solutions Quarterly Valuation – December 2014 $CTSH

139px-Cognizant_Logo.svg

Cognizant Technology Solutions fares quite well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the lack of dividends along with the high PEmg and PB ratios, while the Enterprising Investor is only initially concerned by the lack of dividends. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $0.88 in 2010 to an estimated $2.01 for 2014. This is a fairly strong level of demonstrated growth which is well above the market’s implied estimate for 9.24% earnings growth over the next 7-10 years. Here, the historical growth in EPSmg over the last five years is around 25.6% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but it may be unrealistic that the company would see such a significant slowdown in growth over the long term. Therefore, the model returns an estimate of intrinsic value above the current price, indicating the company is significantly undervalued at the present time.

Read the full valuation on Seeking Alpha!

CTSH Chart

CTSH data by YCharts

Disclaimer:  The author did not hold a position in Cognizant Technology Solutions (CTSH) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

International Business Machines Corp Valuation – April 2019 #IBM

Company Profile (excerpt from Reuters): International Business Machines Corporation (IBM), incorporated on June 16, 1911, is a technology company. The Company operates through five segments: Cognitive Solutions, Global Business Services (GBS), Technology Services & Cloud Platforms, Systems and Global Financing.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of IBM – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $127,277,532,893 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.29 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -24.36% Fail
6. Moderate PEmg Ratio PEmg < 20 13.11 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.65 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.29 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.26 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $10.91
MG Growth Estimate -2.80%
MG Value $31.55
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $158.22
MG Value based on 0% Growth $92.75
Market Implied Growth Rate 2.30%
Current Price $143.03
% of Intrinsic Value 453.39%

IBM Common Stock does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $13.42 in 2015 to an estimated $10.91 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.3% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into IBM Common Stock revealed the company was trading above its Graham Number of $75.75. The company pays a dividend of $6.21 per share, for a yield of 4.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.11, which was below the industry average of 46.57, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-63.31.

IBM Common Stock receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$63.31
Graham Number $75.75
PEmg 13.11
Current Ratio 1.29
PB Ratio 7.65
Current Dividend $6.21
Dividend Yield 4.34%
Number of Consecutive Years of Dividend Growth 20

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $49,146,000,000
Total Current Liabilities $38,227,000,000
Long-Term Debt $35,605,000,000
Total Assets $123,382,000,000
Intangible Assets $39,353,000,000
Total Liabilities $106,453,000,000
Shares Outstanding (Diluted Average) 905,242,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $13.80
Dec2018 $9.52
Dec2017 $6.14
Dec2016 $12.38
Dec2015 $13.42
Dec2014 $11.90
Dec2013 $14.94
Dec2012 $14.37
Dec2011 $13.06
Dec2010 $11.52
Dec2009 $10.01
Dec2008 $8.89
Dec2007 $7.15
Dec2006 $6.11
Dec2005 $4.87
Dec2004 $4.38
Dec2003 $3.74
Dec2002 $2.06
Dec2001 $3.69
Dec2000 $4.44
Dec1999 $4.12

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.91
Dec2018 $9.87
Dec2017 $10.61
Dec2016 $13.04
Dec2015 $13.42
Dec2014 $13.33
Dec2013 $13.63
Dec2012 $12.50
Dec2011 $11.09
Dec2010 $9.65
Dec2009 $8.28
Dec2008 $7.03
Dec2007 $5.82
Dec2006 $4.85
Dec2005 $4.06
Dec2004 $3.66
Dec2003 $3.40

Recommended Reading:

Other ModernGraham posts about the company

International Business Machines Corp Valuation – November 2018 $IBM
International Business Machines Corp Valuation – February 2018 $IBM
International Business Machines Corp Valuation – March 2017 $IBM
International Business Machines Corp Valuation – November 2015 Update $IBM
30 Companies in the Spotlight This Week – 11/15/14

Other ModernGraham posts about related companies

DXC Technology Co Valuation – April 2019 #DXC
Verisign Inc Valuation – March 2019 #VRSN
Motorola Solutions Inc Valuation – February 2019 $MSI
Gartner Inc Valuation – January 2019 $IT
Xerox Corp Valuation – January 2019 $XRX
Cognizant Technology Solutions Corp Valuation – January 2019 $CTSH
International Business Machines Corp Valuation – November 2018 $IBM
DXC Technology Corp Valuation – November 2018 $DXC
Sykes Enterprises Inc Valuation – October 2018 $SYKE
Computer Programs and Systems Inc Valuation – August 2018 $CPSI

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

DXC Technology Co Valuation – April 2019 #DXC

Company Profile (excerpt from Reuters): DXC Technology Company provides digital information technology (IT) services and solutions. The Company provides a range of services, including analytics, applications, business process, cloud and workload, consulting, enterprise and cloud applications, security, and workplace and mobility. The Company also offers e-commerce, finance and administration products and services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of DXC – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $17,558,336,131 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.00 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 76.32% Pass
6. Moderate PEmg Ratio PEmg < 20 18.69 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.61 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.00 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -533,800,000.00 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.50
MG Growth Estimate 6.52%
MG Value $75.41
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $50.79
MG Value based on 0% Growth $29.77
Market Implied Growth Rate 5.09%
Current Price $65.45
% of Intrinsic Value 86.79%

DXC Technology Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.44 in 2015 to an estimated $3.5 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 5.09% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into DXC Technology Co revealed the company was trading below its Graham Number of $76.41. The company pays a dividend of $0.72 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 18.69, which was below the industry average of 46.57, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-32.23.

DXC Technology Co receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$32.23
Graham Number $76.41
PEmg 18.69
Current Ratio 1.00
PB Ratio 1.61
Current Dividend $0.72
Dividend Yield 1.10%
Number of Consecutive Years of Dividend Growth 1

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $8,522,000,000
Total Current Liabilities $8,522,000,010
Long-Term Debt $5,338,000,000
Total Assets $28,871,000,000
Intangible Assets $14,363,000,000
Total Liabilities $17,515,000,000
Shares Outstanding (Diluted Average) 278,990,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.49
Mar2018 $6.04
Mar2017 -$0.88
Mar2016 $1.78
Mar2015 $0.01
Mar2014 $6.28
Mar2013 $4.89
Mar2012 -$3.97
Mar2011 $4.73
Mar2010 $5.28
Mar2009 $7.31
Mar2008 $3.20
Mar2007 $2.21
Mar2006 $2.81
Mar2005 $4.22
Mar2004 $2.75
Mar2003 $2.54
Mar2002 $2.01
Mar2001 $1.37
Mar2000 $2.37
Mar1999 $2.11

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.50
Mar2018 $2.55
Mar2017 $1.35
Mar2016 $2.24
Mar2015 $2.44
Mar2014 $3.59
Mar2013 $2.71
Mar2012 $2.18
Mar2011 $5.02
Mar2010 $4.83
Mar2009 $4.39
Mar2008 $2.96
Mar2007 $2.87
Mar2006 $3.08
Mar2005 $3.01
Mar2004 $2.34
Mar2003 $2.11

Recommended Reading:

Other ModernGraham posts about the company

DXC Technology Corp Valuation – November 2018 $DXC

Other ModernGraham posts about related companies

Verisign Inc Valuation – March 2019 #VRSN
Motorola Solutions Inc Valuation – February 2019 $MSI
Gartner Inc Valuation – January 2019 $IT
Xerox Corp Valuation – January 2019 $XRX
Cognizant Technology Solutions Corp Valuation – January 2019 $CTSH
International Business Machines Corp Valuation – November 2018 $IBM
DXC Technology Corp Valuation – November 2018 $DXC
Sykes Enterprises Inc Valuation – October 2018 $SYKE
Computer Programs and Systems Inc Valuation – August 2018 $CPSI
Science Applications International Corp Valuation – July 2018 $SAIC

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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