Cognizant Technology Solutions (NASDAQ: CTSH) provides information technology consulting and technology services in North America, Europe, and Asia. Specialties involve business process consulting, custom systems development, data warehousing, customer relationship management, enterprise resource planning system implementation, and software testing services. The firm serves companies in the financial services, healthcare, manufacturing, retailing, telecommunications, and information services markets. The client list includes such names as Advanced Micro Devices (NYSE: AMD), Aetna (NYSE: AET) and Nokia (NYSE: NOK).
The Street was surprised earlier in the month, when the company reported Q4 EPS of 34 cents and revenues of $600 million. Analysts had been looking for 31 cents and $594.4 million. Management also guided Q1 EPS to 32 cents (32 cent consensus), Q1 revenues to at least $640 million ($632.24M consensus), FY08 EPS to $1.50 ($1.47 consensus) and FY08 revenues to at least $2.95 billion ($2.87B consensus). Stifel Nicolaus subsequently reiterated its "buy" recommendation on the shares and declared a $43 price target
Last week Forbes released its annual list of the fastest growing tech stocks, and it shouldn't be much of a surprise that Google Inc. (NASDAQ: GOOG) topped the list, with nearly $15 billion in sales, representing five-year sales growth of 155%, and 30% EPS growth. To make the list, companies had to have significant sales growth over the past year and five years, as well as a good earnings forecast for the next three to five years. Companies with significant legal problems or corporate governance issues were excluded.
So if, like Aaron Katsman, Georges Yared, and Jim Cramer, you are bullish on tech stocks, then there's plenty on the Forbes lists worth taking a look at.
MOST NOTEWORTHY: Infosys Technologies, Cognizant and Ansys and were today's noteworthy initiations:
Infosys Technologies (NASDAQ: INFY) was initiated with a Buy rating and $54 target at Kaufman, as their checks indicate no signs of a slowdown in the Indian software services market. They believe the stock is getting no premium for its defensive nature.
Kaufman also initiated Cognizant (NASDAQ: CTSH) with a Hold rating and $35 target and believes the company's less defensive revenue mix could cause its P/E multiple to trend below rivals.
Ansys (NASDAQ: ANSS) was initiated with a Hold rating and $39 target at Jefferies. The firm recommends waiting for a better entry point given the peak operating margins, a more challenging macro backdrop and tougher comps.
OTHER INITIATIONS:
Wachovia initiated Invesco (NYSE: IVZ) with a Market Perform rating.
Dynegy (NYSE: DYN) was assumed with a Buy rating and $9.50 target at Merrill.
Navios Maritime (NYSE: NMM) was started with an Overweight rating at JP Morgan.
MOST NOTEWORTHY: Momenta Pharmaceuticals, Interpublic Group, Lionbridge, PetroChina and Collagenex were today's noteworthy downgrades:
Deutsche Bank downgraded shares of Momenta Pharmaceuticals Inc (NASDAQ: MNTA) to Hold from Buy and lowered their target to $6 following the FDA's non-approvable letter for M-Enox.
Banc of America downgraded shares of The Interpublic Group of Companies Inc (NYSE: IPG) to Neutral from Buy to reflect the economic uncertainty and concerns regarding the company's relative revenue growth.
Lionbridge Technologies Inc (NASDAQ: LIOX) was downgraded to Sell from Neutral at Goldman Sachs following disappointing Q3 results and guidance.
Credit Suisse downgraded PetroChina Company Limited (NYSE: PTR) to Underperform from Neutral based on lack of catalysts.
Jefferies lowered its rating on Collagenex Pharmaceuticals Inc (NASDAQ: CGPI) to Hold from Buy to reflect a lack of near-term catalysts given the company's thin pipeline.
MOST NOTEWORTHY: Staples, Office Depot, GlobalSCAPE and CytRx were today's noteworthy initiations:
Jefferies initiated shares of Staples Inc (NASDAQ: SPLS) with a Hold rating and $22-$24 target. The firm finds the current valuation fair given the increased risk of excess store growth in the industry, increased promotional activity and deceleration of employment growth.
Jefferies expects shares of Office Depot Inc (NYSE: ODP) to trade sideways given the company's accelerating store growth, greater promotional activity and execution issues. The firm resumed coverage with a Hold rating and $22-$24 target.
Soleil started shares of GlobalSCAPE Inc (AMEX: GSB) with a Buy rating and $12 target, as they believe the company has the opportunity to grow revenues around 35%-40% annually and is an attractive acquisition candidate for suitors who address the corporate networking infrastructure marketplace.
Cytrx Corporation (NASDAQ: CYTR) was initiated with a Buy rating and $6 target at Oppenheimer, as they are optimistic regarding the market potential of arimoclomol in amyotrophic lateral sclerosis and sees several catalysts approaching over the next 12-18 months.
Cognizant has been on Fortune's list of fastest growing companies for the past five years. This Teaneck-based member of the S&P 500 is a global IT services firm with clients in the health care, financial services, and manufacturing industries. Cognizant's three-year annual revenue growth rate was 56 percent; its three-year annual earnings per share growth rate was 55 percent. The consensus of analysts surveyed by Thomson Financial is that Cognizant is a buy, and the company has beat Wall Street expectations for the past four quarters. The share price of $85.79 at close on Friday is up from the 52-week low of $67.60 in September. The price has risen since Cognizant announced a stock split and share repurchase program in September, and the Motley Fool has since dubbed Cognizant a hypergrowth stock.
Summit-based Celgene is a biopharmaceuticals firm involved in cancer treatment and stem cell research. Its three-year annual revenue growth rate was 48 percent; its three-year annual earnings per share growth rate was 33 percent. The consensus of analysts surveyed by Thomson Financial is that Celgene is a buy. The share price reached a 52-week high of $72.91 on Friday. The Motley Fool recognized Celgene for its sustainable competitive advantage over its rivals, and Jim Cramer also likes Celgene.
MOST NOTEWORTHY: The technology and services sector, Cognizant, Infosys Technologies and Silicom Ltd were today's noteworthy initiations:
Wachovia initiated shares of Dell (NASDAQ: DELL), Micron (NYSE: MU) and Nokia (NYSE: NOK) with Outperform ratings and IBM (NYSE: IBM), AMD (NYSE: AMD) and Motorola (NYSE: MOT) with Market Perform ratings.
CIBC started shares of Cognizant (NASDAQ: CTSH) and Infosys (NASDAQ: INFY) with Sector Outperformer ratings and a $100 target and $60 target, respectively. The firm views risk/reward as favorable.
Merriman initiated Silicom Ltd (NASDAQ: SILC) with a Neutral rating, citing valuation and low visibility into the quarter.
OTHER INITIATIONS:
BMO Capital started shares of Apple (NASDAQ: AAPL) with an Outperform rating.
Solei initiated Lincoln Electric (NASDAQ: LECO) with a Buy rating and $114 target.
MOST NOTEWORTHY: GlobalSantaFe Corp, Transocean, Frontier Oil, Tesoro and Audio Codes were today's noteworthy upgrades:
JP Morgan upgraded shares of GlobalSantaFe Corporation (NYSE: GSF) and Transocean Inc (NYSE: RIG) to Neutral from Underweight based on valuation and improving deepwater rig fundamentals.
Frontier Oil Corporation (NYSE: FTO) was upgraded at Banc of America to Buy from Neutral as they believe the company's assets are ideally located to access cheap Canadian oil sands production. They feel the stock should trade closer to its replacement value, which they estimate at $55/share.
The firm also raised Tesora Corporation (NYSE: TSO) to Buy from Neutral, as the firm believes Terero is the best play on the extended refining cycle given its exposure to California.
CIBC upgraded shares of AudioCodes (NASDAQ: AUDC) to Sector Outperformer from Sector Performer on valuation after their checks suggested the company's business is stabilizing and cost cutting is tracking ahead of plan, which could bring upside EPS estimates.
OTHER UPGRADES:
GSI Commerce (NASDAQ: GSIC) was upgraded to Buy from Hold at Jefferies.
Despite trading off with the market last week, Cognizant Technologies (NASDAQ: CTSH) remains attractive to nearly every sell-side analyst on the street.
Cognizant reports earnings before the bell tomorrow. As I said, almost every sell-side analyst covering the stock remains bullish on the stock going into numbers for a variety of reasons, including the potential for an upside surprise in revenues and any mildly bad news potential from the quarter probably priced into the stock.
Operating performance is expected to remain strong according to my research. Christine Penzino of JP Morgan reported that her channel checks indicate the potential for revenue upside this quarter due to "driven by strong demand for offshore ITS." This shouldn't come as a surprise to investors who follow this industry closely because strong demand in the offshore ITS space was recently displayed in Syntel's (NASDAQ: SYNT) quarter. However, I think margins could come in low as a result of mostly seasonal headwinds such as wage hikes and increases in visa costs.
MOST NOTEWORTHY: Today's noteworthy upgrades included Lockheed Martin (LMT), Raytheon (RTN), Hartford Financial (HIG), Seagate Technology (STX) and CommScope (CTV):
JP Morgan upgraded two defense stocks today: Lockheed Martin (NYSE: LMT) was upgraded to Neutral from Underweight on valuation;
Raytheon (NYSE: RTN) was raised to Overweight from Neutral, with expectations for the company to post above average organic growth driven by strong bookings. The firm also raised Raytheon's 2008 EPS estimate to $3.80 from $3.60, well above the consensus estimate.
AG Edwards believes Hartford Financial's (NYSE: HIG) recent weakness has created a buying opportunity and upgraded shares to Buy from Hold.
Seagate (NYSE: STX) was upgraded to Buy from Hold at Brean Murray as checks indicate a healthy seasonal uptick in demand for drives and PCs in 2H07.
CommScope (NYSE: CTV) was Upgraded to Outperform from Market Perform at Morgan Keegan based on higher 2007 and 2008 expectations along with accretion from the Andrew acquisition...
OTHER UPGRADES:
BMC Software (NYSE: BMC) was upgraded to Neutral from Underperform at Credit Suisse.
Friedman Billings raised Kimco Realty (NYSE: KIM) to Outperform from Market Perform.
Merck (NYSE: MRK) was upgraded to Buy from Hold at AG Edwards.
MOST NOTEWORTHY: Home Depot (HD), Harley-Davidson, Inc (HOG), Walgreen Co (WAG), Teva Pharmaceutical (TEVA) were today's noteworthy upgrades:
Goldman upgraded Home Depot (NYSE: HD) to Buy from Neutral to reflect management changes and an improved business mix and capital structure. They note this is a longer-term call given the ongoing impact from the sluggish housing market.
Matrix believes shares of Walgreen Co (NYSE: WAG) are undervalued as increasing sales of generic drugs continue to drive positive trends and upgraded shares to Strong Buy from Buy.
Teva Pharmaceutical (NASDAQ: TEVA) was upgraded to Outperform from Peer Perform at Bear Stearns citing valuation and growth prospects.
OTHER UPGRADES:
SAIA Inc (NASDAQ: SAIA) was upgraded to Equal Weight from Underweight at Stephens.
France Telecom (NYSE: FTE) was upgraded to Neutral from Underperform at BNP Paribas.
MOST NOTEWORTHY: United Rentals, Inc (URI), Nintendo Co (NTDOY), Shuffle Master, Inc (SHFL), CheckFree Corp (CKFR) and The Kroger Co (KR) were some of today's noteworthy downgrades:
JP Morgan cut United Rentals Inc (NYSE: URI) to Underweight from Neutral believing the company's strategic alternatives and valuation upside are limited given slowing end markets and lack of sources to unlock value.
Prudential downgraded Shuffle Master Inc (NASDAQ: SHFL) to Neutral from Outperform following a field trip to Macau, as they are incrementally more negative given competition in electronic table games and continued market share erosion in slots.
JMP Securities cut CheckFree Corp (NASDAQ: CKFR) to Market Outperform from Strong buy and has a greater degree of certainty that Bank of America (BAC) is planning on moving its payment warehouse portion of online bill pay in-house over an unspecified period. The firm believes earnings can be impacted by 25c-30c annually.
HSBC downgraded shares of The Kroger Co (NYSE: KR) to Neutral from Overweight.
OTHER DOWNGRADES:
ThinkEquity downgraded KLA-Tencor Corp (NASDAQ: KLAC) to Accumulate from Buy.
Cowen downgraded Salesforce.com, Inc (NYSE: CRM) to Neutral from Outperform and removed the company from its Focus List citing reduced visibility, lack of near-term catalysts and potential increased competition from Oracle Corp (ORCL) and Microsoft (MSFT).
JP Morgan cut Dr. Reddy's Laboratories Ltd (NYSE: RDY) to Underweight from Overweight to reflect the increased risk of changing market conditions in Germany.
Matrix USA downgraded Coinstar, Inc (NASDAQ: CSTR) to Sell from Hold on valuation.
Although taking different approaches to investing, Dan Sullivan and Nick Vardy are both recommending the same stock -- Cognizant Technology (NASDAQ: CTSH).
The company provides IT consulting and technology services -- and is best known for its leading role in outsourcing.
Sullivan, editor of The Chartist, points out that for the fourth quarter ended Dec. 31, the company earned $69.5 million, up 21% while sales rose 65%, to $424.4 million. For the full year, earnings rose 40% sales were up 61%.
The advisor notes, "Despite recent selling pressure over the past few weeks, Cognizant holds the #1 spot in our relative strength ratings."
Nick Vardy, editor of The Global Stock Investor, calls the stock the "best in class." He explains, "The Indian outsourcing play continues to garner accolades. Congnizant was just recently named one of Business Week's 50 Best Performing Companies, ranking 12th overall and second in the Information Technology sector."
He points out that the rankings are meaningful, since Business Week selects the 'best in class' from each of the 10 sectors that make up the S&P 500. Companies were chosen based on sales growth, average return on capital, total return, profitability and rank within industry sector.
For more stock picks from the leading financial newsletter advisors, visit Steven Halpern's free daily website, TheStockAdvisors.com.
information technology consulting and technology services in North America, Europe, and Asia. Specialties involve business process consulting, custom systems development, data warehousing, customer relationship management, enterprise resource planning system implementation, and software testing services. The firm serves companies in the financial services, healthcare, manufacturing, retailing, telecommunications, and information services markets. The client list includes such names as Advanced Micro Devices (NYSE: AMD), Aetna (NYSE: AET) and Nokia (NYSE: NOK).
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