Why Cognizant Technology Solutions Corp. Will Keep Flying

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Cognizant Technology Solutions Corp.  (NASDAQ: CTSH  ) gained about 1% today after UBS upgraded the IT services provider from neutral to buy.

So what: Along with the upgrade, analyst Steven Milunovich boosted his price target to $58 (from $50), representing about 12% worth of upside to yesterday's close. So while contrarians might be turned off by the Cognizant's price strength over the past year, Milunovich's call could reflect a strengthening sense on Wall Street that its growth prospects still aren't fully baked into the valuation. 

Now what: According to UBS, Cognizant's risk/reward trade-off remains rather attractive at this point. "Cognizant is well positioned for the current IT environment in that IT budgets are under pressure with a focus on cost optimization (Cognizant's "run better"), and savings are being spent on new technologies (its "run different")," said Milunovich. "Cognizant is one of the few vendors equally credible in both, which it calls dual mandates. Our UBS CIO Survey published today suggests this tepid spending could continue for some time." More importantly, with Cognizant continuing to boast a rock-solid balance sheet and reasonable forward P/E of 19, the downside seems limited enough to bet on that bullishness.

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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Related Tickers

9/3/2015 3:59 PM
CTSH $62.86 Up +0.32 +0.51%
Cognizant Technolo… CAPS Rating: *****