CFA Research Challenge: Analyzing Cognizant (CTSH)

We analyzed Cognizant for the CFA Research Challenge competition for 2019.

Goal

Part 1: To provide a detail rundown of CTSH's operations, market strategy, industry overview, and competitive positioning using the historical information provided by CTSH, it's competitors, and market analyst.

Part 2: Conduct financial analysis to assess CTSH's performance (organic and inorganic) and profitability compared to industry peers. We've utilized important financial metrics, such as EBIT, EBITDA, and ROIC, as well as analyzing capital allocation related to dividends and free cash flow.

Part 3: Using our financial analysis, we've constructed a set of assumptions for the foundation of our valuation. Our valuation consisted two methods: Discounted Cash Flow and Trading Comparables. Based on these valuation metrics, we provided a target price for CTSH.

Part 4: We analyze the different investment risk that would prevent CTSH share price from reaching the target price.

Part 5: We provide our investment recommendation.

Data

Considering the nature of this competition, we were only able to use information from public sources; however, each CFA research team was provided with free access to S&P Capital IQ, which the vast majority of our information originated.

We also utilized industry analysis from the International Data Corporation (IDC). We used economic data from the Bureau of Economic Analysis and the Bureau of Labor Statistics.

Historical time-series asset prices such as CTSH's stock or currency exchange rates were provided with Bloomberg.

Enviroment and Tools

Financial models were built and implimented using excel. We also constructed graphs, charts, and tables using excel. All of the necessary items were linked to Microsoft Word and Powerpoint for the construction of the report and the presentation.

Research Results

• CTSH's digital business will grow at a rate between 20 - 25% in the next five years.
• CTSH will improve its profitability by expanding its addressable market
• CTSH will increase the return of cash generated to shareholders

We valued CTSH using the Perpetuity Method, Exit EBITDA Multiple Method and using Relative Valuation; our valuations using each of these methods were $88.99, $107.92, and $81.59 respectively. Using the weighted average of these valuations, our target price is $90.60.