Workers had much to celebrate this Labor Day with jobs plentiful and wages rising. The hot summer of inflation appears to be cooling with a deep freeze recession currently not in sight, notes Ingrid Hendershot, value-oriented money manager and editor of Hendershot Investments.
Despite a challenging operating environment including inflationary pressures, Covid shutdowns, geopolitical tensions, foreign exchange headwinds and an uncertain macroeconomic environment, our high-quality companies have performed well given resilient business models. In addition, most of our high-quality companies appear reasonably valued which bodes well for future long-term returns!
Cognizant Technology Solutions (CTSH) is one of the world’s leading professional services companies, helping clients become data-enabled and data driven in the digital era.
Its expertise lies in technology areas, such as artificial intelligence, augmented reality, automation, autonomous products, cybersecurity, cloud, cognitive computing, IoT, robotics, sensors and instrumentation and virtual reality. Cognizant continues to deepen their expertise in 20 different industries, including banking and financial services, healthcare, manufacturing and retail.
Cognizant Technology Solutions reported second quarter revenue increased 7% to $4.9 billion with net income increasing 12% to $577 million and EPS up 14% to $1.11. During the first half of 2022, the company returned $1.03 billion to shareholders through dividends of $284 million and share repurchases of $744 million at an average cost per share of $80.87.
Given the solid first half results, management updated its guidance with revenues now expected in the $19.7 billion to $19.9 billion range, up 6.3% to 7.3% from last year or up 8.5% to 9.5% on a constant currency basis.
Adjusted operating margin is expected to expand 20-30 basis points to a range of 15.6% to 15.7%. This should generate EPS in the range of $4.51 to $4.57, up 11% to 13% from last year. This includes an expansion of expected share repurchases to $1.2 billion up from prior guidance of $600 million.
Longer term, Cognizant’s goal is to grow revenues at high-single to low double-digit rates with annual margin expansion of 20-40 basis points, driving free cash flow in the $2 billion range annually. Cognizant’s capital deployment plan is to utilize about 50% of global free cash flow annually for dividends and share repurchases.
In addition, Cognizant plans to spend about one billion dollars annually on strategic acquisitions to enhance the company’s longer term strategy of enriching its digital capabilities, expanding its geographic footprint and enhancing its vertical expertise.
Long-term investors should be cognizant of Cognizant Technology Solutions, a high-quality industry leader with a solid capital deployment plan which includes strategic acquisitions, growing dividends and substantial share repurchases.