Cognizant Technology Solutions CTSH had a tough 2019 primarily due to weakness in the banking and technology sector. Lackluster spending by large banks and stiff competition in the IT services market hurt growth.
Notably, shares lost 6.2% in the past year against the industry’s rally of 19.3%.
Nevertheless, Cognizant’s domain expertise and ability to harness the ongoing digital transition are key catalysts. The company also has been wining accolades in recent times.
Forrester Research named Cognizant a leader in SAP services for mid-size enterprises in a recent report.
The independent research firm evaluated 12 SAP service providers on 22 criteria based on their current offerings, strategy and market presence in its report, ‘The Forrester Wave: SAP Services Providers for Midsize Enterprises, Q4 2019.’
The company received the highest possible scores in 17 criteria, which includes ongoing support services, implementation services, S/4HANA capabilities, commercial model, partner ecosystem, number of clients, innovation roadmap, geographic breadth and revenues from SAP services.
Investments, Acquisitions to Drive Growth
The report states that Cognizant was the largest SAP services provider included in the evaluation, with more than 10,000 SAP practitioners among its 289K employees.
Additionally, the company offers the broadest coverage of next-gen SAP apps among the providers, with particular strength in C/4HANA and S/4HANA.
This is largely because of Cognizant’s continuing investments to extend its digital capabilities, including extensive training and re-skilling of its employees. Moreover, the company’s domain expertise and ability to harness the ongoing digital transformation are key factors.
As the SAP infrastructure continues to move to cloud and expand to link experience and operations, the company’s plan to invest in cloud and automation is expected to drive growth in 2020.
Moreover, the company’s acquisitions are strengthening its digital capabilities, client base and market footprint.
Notably, Cognizant acquired tech consulting firm Contino on Oct 16, 2019 to augment its digital engineering and core modernization capabilities and to offer transformative cloud- based solutions.
In July 2019, Cognizant completed the acquisition of Zenith Technologies, thus expanding its IoT portfolio. This has enabled the company to become a single-source provider of end-to-end smart factory capabilities.
Further, the company’s acquisition of Meritsoft on Mar 5, 2019 strengthened its SaaS portfolio and expanded its footprint among financial institutions.
Intense Competition in IT Services
The company is facing stiff competition in the IT services industry where it is competing against large service providers with greater resources like Accenture ACN, DXC Technology DXC and International Business Machines IBM.
Moreover, there is significant competition for highly skilled and efficient personnel. Thus, the company remains under pressure to raise wages and control the attrition rate. Though the company has been taking initiatives to retain employees, its attrition rates are still higher than preferred.
Cognizant currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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