Cognizant Technology Solutions Corp (NASDAQ:CTSH) stock is shaking off the post-Thanksgiving slumber in equities, surging 8.5% on a shakeup courtesy of Elliott Management Corporation.
Elliott Management, affiliated with activist investor Paul Singer, disclosed a 4% stake in CTSH stock, urging the company to reexamine its board in an effort to increase shareholder value. Prior to today’s boost, shares of Cognizant were decimated 11.3% for the year.
According to Elliott, the IT services company needs to increase its profit margins and put more cash in the pockets of CTSH stock holders, as Cognizant’s margin target has remained the same over the past 20 years despite the company’s growth. That, as Elliott describes it, is “mask[ing] inefficiency while impairing the company’s flexibility to make sound investments.”
“We believe that Cognizant can achieve a value of $80–$90+ per share by the end of 2017, representing upside of 50-69 percent in just over a year,” said Elliott Senior Portfolio Manager Jesse Cohn, addressing Cognizant’s board, which he believes lacks new blood. “Given the sustained share price underperformance at Cognizant, we believe directors with new experiences, skills and perspectives would be welcome.”
Elliott is also pushing for other initiatives for CTSH stock holders, including a $2.5 billion share buyback, paying a dividend or acquiring its way to new avenues of growth. It’s also encouraging Cognizant to revamp its delivery process, as well as its sales and marketing departments, and to make cuts in its human resources and finance units.
Other companies that Elliott touched sold themselves to private companies in bids to return value to shareholders, including Qlik Technologies, Riverbed, Informatica and Compuware.
Bottom Line on CTSH Stock
Cognizant investors agree with Elliott’s calls for a board shakeup and increased shareholder value, as things haven’t gone too well for the company as of late. The company slashed its revenue forecast in August and in September announced a probe into the sanctity of payments in India.
Still, as Elliott Management notes, Cognizant trades at its lowest valuation in nearly a decade and has $4 billion in cash (plus $1.1 billion in onshore cash) and basically no debt.
Cognizant has yet to issue an official response to the activist investment firm’s calls, and Elliott could soon use a “proxy contest” to implement the changes it wants for CTSH stock holders.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.