Pricing improvement may add to Cognizant profitability

Cognizant Technologies (CTSH) provided three-year growth and margin outlook at its analyst day (18 November 2021). The company expects 8-11% CAGR growth over 2022-24 (6-9% organic) and EBIT margin expansion of 20-40bps every year. We believe while the guidance is pretty much in line with expectations, it does provide confidence in stability at the company post an era of reasonably high management churn and also multiple high-profile client issues. Core assumption behind growth guidance of 6-9% is 7-8% industry growth over three years (so largely in line with industry growth) and continued recovery in the banking and healthcare business of the company. CTSH has faced multiple client issues, both in the banking and healthcare verticals in the past three-four years and the company expects more stable and predictable growth going forward (please refer our upgrade note CTSH – Upgrade to Buy: Risk-reward favourable, 22 July 2021).