Cognizant Technology Solutions Corp Class A (CTSH)

Conclusion

Cognizant Technology Solutions provides IT consulting, application development, systems integration, outsourcing and business process services to clients in North America, Europe and other regions. On 2026-11-09 the share price was 63.60 USD, giving a market capitalisation of 28.4 billion USD.

The verdict is undervalued. The price-to-earnings ratio of 11.0 compares with a ten-year median of 20.6, and enterprise value to EBITDA of 7.1 compares with 11.8. The discounted cash flow gives 92.93 USD per share at a discount rate of 9.03%, and the fair value from historical multiples is 113.68 USD. The fair value band runs from 82.65 to 123.97 USD with a midpoint of 103.31 USD, a margin of safety of 62.4% at the current price. The reverse DCF implies growth of -0.35% a year, against a five-year revenue CAGR of 4.9% and a five-year free cash flow per share CAGR of 0.1%.

The strongest numbers are interest coverage of 75.2x, net debt to EBITDA of 0.14, and free cash flow conversion of 98.8% over five years. ROIC of 15.3% against a WACC of 8.6% also supports the case. The weakest numbers are the three-year EPS CAGR of 1.6%, the trailing gross margin of 32.0% against a ten-year median of 36.3%, and next-year estimates, which have been revised down by 0.5% over 90 days, with 11 downward revisions against 5 upward in the last 30 days.

Financial health

Financial strength is green, held up by interest coverage, net debt to EBITDA, the current ratio and the Altman Z-score, none of which signals any stress. The current ratio is 2.22 and the quick ratio is 1.76, while net debt to EBITDA is 0.14 and debt to equity is 0.14. Interest coverage is 75.2x on a trailing basis. The Altman Z-score is 5.39, in the safe zone. The Altman model was designed for manufacturers, so this reading is a rough guide for an IT services company. Insolvency risk is low, about 0.03% by the estimate of the Ohlson model over one to two years, based on 2025 year-end figures.

Earnings quality

Earnings quality is green, supported by strong cash conversion, a negative accrual ratio, and a Piotroski score of 7 out of 9. Free cash flow conversion is 91.8% on a trailing basis and 98.8% over five years. The accrual ratio is -3.2%, which means cash earnings exceed reported earnings. Stock-based compensation is 0.6% of revenue, and free cash flow after it is 2.24 billion USD. The share count has fallen at a five-year CAGR of 2.3%, which reflects buybacks. The Beneish M-score of -2.52 is in the unlikely range for earnings manipulation. Cognizant beat estimates in 7 of the last 8 quarters, with an average surprise of 3.7%.

Profitability

Profitability is green, held up by operating margin and ROIC. The operating margin is 15.6% against a ten-year median of 15.3%, and the net margin is 11.8% against 11.2%. The gross margin is 32.0% against a median of 36.3%, which is the weakest margin line. ROIC is 15.3% against a WACC of 8.6%, and the given ROIC minus WACC value of 6.6% indicates value creation. The five-year median ROIC is 16.3%. Return on equity is 17.5%. The DuPont split shows a net margin of 10.6%, an asset turnover of 1.02 and an equity multiplier of 1.38 at year-end 2025, so the return comes mainly from margins and turnover, not from leverage.

Growth

Growth is green on the scorecard, though revenue growth is only neutral. Revenue compounded at 2.8% over three years, 4.9% over five and 5.5% over ten. EPS compounded at 1.6% over three years, 12.5% over five and 5.7% over ten. Free cash flow per share compounded at 7.7% over three years, 0.1% over five and 5.8% over ten. Revenue grew in 8 of the last 10 comparable years. The next-year EPS estimate implies growth of 8.8%.

Valuation

Valuation is green, as the price sits well below its ten-year medians on every multiple. The price-to-earnings ratio is 11.0 against a median of 20.6, a premium of -46.3%. The enterprise value to EBITDA ratio is 7.1 against 11.8, a premium of -40.1%. The price-to-free cash flow ratio is 12.0 against 19.3, a premium of -37.6%. The price-to-sales ratio is 1.3 against 2.4, and the price-to-book ratio is 1.9 against 3.5. The DCF gives 92.93 USD per share with a discount rate of 9.03%, and the terminal value accounts for 55.7% of it. The reverse DCF implies growth of -0.35%, against five-year revenue growth of 4.9%. The fair value is an estimate built on fixed assumptions, including a 5% equity risk premium and capped growth. It is not a price target. The dividend yield is 2.2%, and the payout on free cash flow is 26.1%.

Risks

The gross margin has run below its ten-year median, and the three-year EPS CAGR of 1.6% is weak. If margins do not recover, the earnings base behind the low multiples would stay under pressure. Next-year estimates are being revised down, which could widen the gap between the price and the implied growth. Five-year free cash flow per share is nearly flat, so the valuation depends on the cash base holding up. The DCF depends on the terminal value for about 55.7% of its result, and a change in the discount rate would move it materially. The analysis does not include a debt maturity schedule or revenue by segment, so refinancing risk and segment concentration cannot be assessed. The Altman model is not designed for a services business, and the insolvency estimate rests on 2025 year-end figures.