- Cognizant has had a tough 2020 due to the pandemic's unfavorable impact on its businesses.
- Margins have generally been declining for a few years. Still, the company generated $821 million of FCF in Q3 and $2.1 billion in free-cash-flow ("FCF") YTD - an estimated $3.86/share.
- Unfortunately for ordinary shareholders, the company has overprioritized share buybacks over dividends: the annual dividend is only $0.88/share.
- M&A continues to be a key component of management's growth strategy.
- The valuation is low compared to peers, but due to the lack of top-line growth and bottom-line growth, and relatively small dividend compared to FCF, I rate the shares a Hold.
For further details see:
Cognizant Technology Solutions: FCF Generator Is Buyback-Heavy, Dividend-Light