<<Is there credence to those who say that they can not compete, longer term, with Satyam, Winpro, and Infosys since they are native Indian firms?>>
Those people don't know what they're talking about. Cognizant is THE top drawer outsourcing company. They have absolutely the highest development standards in the business. They 'talk the talk' and 'walk the walk'. Full disclosure: I've worked with CTSH since 1995. I'm an independent software designer/entrepreneur and they have done a superb job of developing everything they've ever done for me 'on-time' and 'on-budget'.
And they've become so much better since my last project with them 3-years ago.
<<Also, there have been some issues about wage inflation and problems in hiring qualified folks.>>
Everything is relative. India wages are -65% below ours. 3-4 years ago they used to be -75% below ours. And before that -85%. In fact during the Internet boom period (1995-2000) when US programmers were getting $75,000 to $100,000 due to the Y2K problem, India programmers were getting $7,500 to $10,000/year.
Believe me, the economics are still very compelling.
However, beyond favorable wage costs, it is also true that CTS personnel have an incredible work ethic that has them working until 9 or 10pm msot night as well as weekends. This is true on every project I've ever done with them.
<<Lastly, is $72.00 (price target) too rich for its projected 37% EPS growth rate going into 2007?>>
Someone else needs to take a crack at that one. I think it does based on my experience as an investor for the past 7-years.
I would like to add that I think sooner or later CTSH will miss their 40+% growth they have consistently delivered for years. After all they are a $1-billion company now. But I believe their sales strategy of going after significant 'core' accounts in 'core' industries that are major 'development spenders' (I think their qualification hurdle rate for potential clients is that the clients spend currently or have the potential to spend $40+million per year in development. To find these kinds of companies, it means look at the Fortune 500 companies in major growth industries. Based on their annual report, some of these include Healthcare (particularly Medicare D), Financial institutions (JP Morgan Chase named CTSH supplier of the 2005), Retail, Media/Entertainment, Insurance and there's more.
They have industry specialists that know an industry because they've spent a career in it and they also know IT. So CTS develops an expertise in an area that gives it a 'lots of legs' to go after other business. For example, imagine a software development group that understands Medicare Part D, the new program that touches virtually every part of the healthcare industry including hospital, insurance companies, doctors, pharmaceutical companies, medical clinics. Now imagine that $.55 out of every dollar spent on heathcare is spent on paper work. Since the right kind of computer program can knock the time spent filling out forms down by 95%, I think it is doing work on Medicare fulfillment and other related business is a brilliant strategy. What an opportunity!
Anyway, I'm quite excited for CTSH because they have managed to focus on a specific group of industries and companies and persistently pursue those companies in order to do 'just one project'. Their goal is to grow that one starter project into $40+million in annual billing from the client. Great strategy, IMO. |
