May 25, 2009 - Cognizant Technology Solutions Corp. (CTSH-NASDAQ) provides information technology (IT) consulting and technology services, as well as outsourcing services in North America, Europe, and Asia. Its IT consulting and technology services include business process consulting; IT strategy consulting; technology consulting; application design, development, integration, and re-engineering, such as complex custom systems development, data warehousing/business intelligence, customer relationship management (CRM) system implementation, and enterprise resource planning (ERP) system implementation; and software testing services.

While most companies are toughing out a difficult economy, Cognizant is growing. Sales are booming. Analysts see growth of 31.5% a year over the next 5 years. Of course, that's below the 48% a year the company recorded over the last 5 years, but it's still well above most others. Revenues in 2006 totaled $1.424 billion. In 2007, they were $2.153 billion, then hit $2.816 billion. This year, 17 analysts have a consensus estimate of $3.10 billion, then $3.51 billion in 2010 (the range for next year goes from $3.37 billion to $3.70 billion).

Earnings have followed the same path. Over the last 5 years, they averaged 42% growth per year. In the next 5 years, analysts see increases of "only" 18.4% a year, on average. In 2006 earnings per share (eps) of 78 cents, followed in 2007 by $1.16. Last year, they were $1.44. This year, analysts see $1.54, then next year at $1.65. Second quarter results are estimated at 37 cents a share, ahead of 35 cents reported last year in the second quarter.

Even with most companies restraining their IT budgets, Cognizant is seeing growth. The first quarter of this year showed sales up 16% and eps up 12%. Big contributors to the healthier results were the retail, manufacturing, logistics and healthcare divisions. Slow downs were reported in the financial services group. Other contributors to the bottom line were a sharp focus on costs and and better sales in Europe. Financial services made up 46% of sales in 2008. Healthcare was 24%. Retail/Manufacturing, logisitics was 16%. Other industries were 14%.

If you believe the current economic illness will be cured by 2010, then you'll definitely want to dig deeper into CTSH. With a stronger economy, the financial services sector will need more technology, hardware and services. Furthermore, many companies which switched to outsourcing services to cut costs during these difficult times will most likely continue as another way to keep costs down. There's also market expansion possibilities as the global economies recover, particularly in Europe where CTSH already has a presence. However, keep in mind, the company's CRM centers are located in India, so it has a currency risk as well as higher wage concerns.

More numbers: There's over $800 million in cash in the bank. There is no debt. Market Cap is $7.25 billion. Price to Book is 3.51. Book Value is $7.10. Current ratio is 4.48. Total cash per share is $2.77. Operating margin for the last 12 months was 18.6%. Profit margin was 15.15%. Return on assets was a remarkable 24%. The 52 week high was $37.10, reached on June 19, 2008, the low was $14.38 on November 21, 2008. There are 292.12 million shares outstanding with a float of 288.22 million. Insiders own 8.31%. Institutions have 83%. There is no dividend.

This is a solid company with a good growth history. The stock has done extremely well, particularly between 2004 and 2007 when it had three stock splits (3 for 1 in 2003, then 2 for 1 in 2004 and 2 for 1 in 2007). It's well off its split-adjusted all-time high of $47.80. It recovered quickly after the November meltdown. Most investors would find more time looking into the stock worth it.

- Company Web site: www.cognizant.com 

- Ted Allrich