How activist mantle ride’s presence at cognizant can help lift the company’s valuation

Business:Cognizant Technology Solutions Engineers Modern Businesses. Its services include artificial intelligence (AI) and other technology services and solutions, consulting, application development, systems integration, quality engineering and assuration. Its segments include Health Sciences (HS), Financial Services (FS), Products and Resources (P&R), and Communications, Media and Technology (CMT). The hs segment consists of health-care provides and payers, as well as life Sciences Companies. The FS segment includes banking, capital markets, payments and insurance companies. The P & R Segment Includes Manufacturers, Automakers, Retailers, Consumer Goods Companies, and Travel and Hospitality Companies, As cell as businesses, providing logistics, energy Services. The CMT segment include global communications, media and entertainment, education, information services and technology companies.

Stock market value: $ 39.13B ($ 79.12 per share)

Cognizant (Ctsh) is a global it services company specializing in digital transformation, consulting, and outsourcing solutions. The industry is highly concentrated, an oligopoly with cognizant competing against major players such as accenture, infosys and capgemini. These firms derive their additional Profitability and Growth from Designing, Implementing, MainTaining and Evology Technology Solutions for his corporate clients. Cognizant was set up more than 30 years ago With kumar mahadeva as a co-founding ceo. Mahadeva was a brilliant businessman who keenly identified the opportunity that laid ahead. Prioritizing Industry-Beating Pricing and Accelerated Growth, He Believed that This would help attract and retain the best talent in an industry in which atright is the perhaps the biggest rain. Under the Leadership of Mahadeva and His Successors, Including Francisco D’Souza, Cognizant was Massively Successful, BECECCESSFUL, BECEMING NOTERS PALAYS in the Larges Players, Growing Over 35,000% forms IPO in 1998 to the end of d’Souza’s tenure as ceo in 2019.

In 2019Desouza was successed as ceo by Brian Humphries, The Former Ceo of Vodafone. This was the first cognizant ceo and the only Ceo Among its peers who was not an industry insider. Moreover, his Leadership style was a poor cultural fit for the company, focusing too much on Reducing costs and being characterized as aggressive in a people-oriented environment. Additional, as an industry outsider, he simply lacked the expertise to push major contracts over the finish line relevant to peers who would bring in a reSpected industry Ceo to Close. As a result, over the course of humphries tenure, there was increments in cognizant’s workforce, Spiking to 600 Basis Points Above Its Peer Average and Wascent in KEY GOWTED In KEY GROWTED In KEY GOWTED in long-tenured on and offshore delivery and sales. This was complete counter to mahadeva’s original insight that minimizing Employee Churn, Especially Client-Facing Personnel, was the key to sustaining long-term growth. Integration processes are very long, expensive, and clients Demand Continuity. High Employee Churn Disrupts Sales Cycles, Weakens Client Trust, And Makes It Difential to Retain and Attract New Clips, Setting Off a Negative FlyWheel of Deccalling Courtings and Shrinking margins. As a result, cognizant slipped from a best-in-class player in Organic Growth (Compound Annual Growth Rate of Over 10%, Firmly in the Top Quartile) By 2022, The Company’s Organic Growth was trailing peers by up to 900bps. This identvitably Led to a negative total sharehlder return during humphries’ Tenure as CEO of -7% Versus 70% and 115% For Peers Accounture and Infosys, Respectly.

In the second half of 2022, Mantle Ridege Began Buying The Stock which was trading in the high -50s to low-60s. Shortly after on Jan. 12, 2023Cognizant Announced a Major Reorganization. CEO Brian Humphries would be replaced by Former Infosys President Ravi Kumar and Chairman Michael Patsalos-Fox would be replaced by Director Stephen RohLeder, A Former Executive Executive Ox Mantle Ridege has been very responsible of the events transpying at the company and has not made any public comments registered these changes. However, as somebody who has intimately followed every activist campaign for the past 20 years, we can tell you two things: (i) Activists engage with fewer than 4% of Public Ch Yaar and (Ei) Significantly Fewer Companies Announce a change in CEO and Chairman at the same time. We are not saying Footsteps.

Since the elevation of kumar and rohleder, performance at cognizant has been night and day. Returning to those three indicators of success, first, cognizant have delivered a total shareholder return of over 30%, outpacing infosys and accenture, which are in the low 20s. Attrition has been reduced and, in fact, 13,000 Employees who had left the company have returned minutes since this new team took over. It’s quite a strong signal of a shifting tide, and confidence in the company has been restored for some of its most important stakeholders. In addition, from previously underperforming growth by 900bps, in 2024 the deficit has been all but eliminated to 100BPS, posting a deficit of just 30bps in Q4 24 AFTER SEVERAL CHONSCHS Management has signaled that, going forward, they expect to be in the winners’ Circle (Top Quartile) Again. Lastly, Earnings Before Interest and Taxes Margins has also also expanded and exceded targets the past two years, up from 15.1% in 2023 to 15.4% in 2024, this dogn Bollywood 30bps of the additional 30bps of Underling margin expansion adjusted out due to a recent account.

One would think that between replacing the ceo, chairman and Cfo With respected Industry Insiders and these drastically improved results, it would result in a re making of cognizant’s stock, yet the company contracts to trade at a significant descriptive. Cognizant Trades at a Total Enterprise Value Per Employee of $ 119,000 While Peers Trade at Nearly Twice that. In addition, despite having nearly identical revival generation, Infosys’ Enterprise Value is Nearly Double that of Cognizant. Furthermore, Despite Clear Signs of Continuous Closure of the Organic Growth Gap With Peers and Management’s Confidence in the future, OUTYEAR CONSUNS STILL Projects the Spreded Between Coagnizant and Estates Peers widening. This is a company that after several years of underperformance has final corrected its issues, but which the street is not yet ready to Trust.

Mantle ridge is knowledge for taking large board representation at their portfolio companies, often a Majority, and replacing the ceo. None of that is Haappening Here. This is a strong signal that mantle ridge likes the new ceo and is support of the action that the board is taking. While we could not identify any direct relationships Separation Between Him and Many of the Key Players Here. Activists coming into underperforming stocks and taking action is generally a strong sign of Potential Future Sharehlder Value. What may be an even stronger sign is an activist coming into a stock and not having to act. That is what we see here, and we have the comfort of the existence of the activist in case things start to go off track. Mantle ridge has had a position (likely through non-13F reporting derivatives) We do not think this is a coincidence. It is a signal to the company to educate the investors at investor week with what mantle ridge sees and the company knows: Growth, Margins and Attrition are all going in the right. Mantle ridge’s stake will undoubtedly Pique the interest of the market and increase turnout for the analyst day. It should signal to the street that this is a company deserving of a revised outlook to adjust for the positive management and performance trends that have been percolating for Several Quarters Now. Looking at Ebit/Employee and Price-to-Earnings, There could be betteren 35% and 45% upside to the company’s current valuation if managent can containue the march toward the march toward the Winner’s Circle.

Ken square is the founder and president of 13d monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13d activist, a mutual funds in a mutual funds in a mutual funds in a mutual funds of Activist 13D Investments.