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Cognizant Scales New 52-Week High: What's Driving the Stock?

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Share price of Cognizant Technology Solutions Corporation (CTSH - Free Report) rallied to a new 52-week high of $77.14, eventually closing a tad lower at $76.75 on Jan 18.

Notably, its shares have gained 35.5% year to date, outperforming the  industry's 31.6% rally. The company is benefiting from the correct growth initiatives that helped it move in the right direction.

We note that the company beat the Zacks Consensus Estimate in three of the trailing four quarters and matched once, delivering an average positive surprise of 1.91%.

Currently, Cognizant carries a Zacks Rank #3 (Hold). The company has a market capital of $42.3 billion and a long-term expected earnings growth rate of 13.3%.



What’s Backing the Rally?

Cognizant is consistently developing its capabilities to benefit from the ongoing digital transition, especially when it comes to integration of the new digital framework with legacy technology platforms.

Cognizant’s strong growth can be attributed to its significant exposure to fast-growing verticals like Financial Services and Healthcare. Robust growth in the company’s Products & Resources segment along with its Communications, Media and Technology segments is also driving its top line.

We note that the Financial Services segment is driven by growth in insurance companies and mid-tier banks, which offset the softness arising from large banks. We believe that higher demand from payer and top-tier consulting clients in the healthcare segment will help it in sustaining the growth momentum.

Moreover, acquisitions have been a key growth driver for Cognizant. The buyouts have not only led to an increase in new customers but also have expanded its capabilities in the healthcare industry and have enhanced its overall digital delivery capabilities.

Additionally, Cognizant has gained deep industry expertise and knowledge of the domains through partnerships with top firms like Microsoft and SAP SE.

This strategy has enabled the company to deliver more value to clients and capitalize on new opportunities. It has also provided a competitive edge against the likes of Accenture, Infosys and Wipro.

Key Picks

A few better-ranked stocks in the broader technology sector are Micron Technology (MU - Free Report) , Mellanox Technologies Ltd. (MLNX - Free Report) and EchoStar Corporation (SATS - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Micron, Mellanox and EchoStar is currently projected to be 10%, 16% and 18.5%, respectively.

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