Krause Fund Research

Cognizant Technology Solutions Corp. (NASDAQ: CTSH) April 18, 2020 Technology – IT Consulting Stock Rating: StockHOLD Rating

Analysts: Current Price: $52.53 Chuck Axmear – [email protected] Target Price Range: $50-$55 Trey Officer – [email protected]

Investment Thesis Forecast Outcomes

Drivers of Thesis: Discounted Cash Flow: $55 Dividend Discount Model: $50 • Cognizant has made major changes throughout its Relative P/E Model: $53 employee structure to beat growth expectations.

Cognizant made major changes in management mid- Company Overview 2019 after falling behind its competitors in growth for Cognizant Technology Solutions Corp. is a multiple years. After laying off employees in lower professional services firm based out of demand divisions and retraining others for new projects Teaneck, New Jersey. Cognizant’s provides as part of its “Fit for Growth 2020” plan, Cognizant consulting, technology, and outsourcing should be prepared for a new period of growth by 2021. services for large corporations across every • The Coronavirus outbreak could lead to higher industry. Cognizant’s main products offer a demand for digital solutions in the future. number of different digital solutions to drive Since the worldwide transition to working from home efficiency and growth for its clients. by employees across the world, many companies are seeing the benefits of taking more of their processes online. Demand from these new trends is beneficial for Statistical Highlights Cognizant. 2020E PEG Ratio 1.1 Risks of Thesis: Current P/E Ratio 16.36 • Lost profits from the COVID-19 Crisis will lead to less Beta 1.14 investments from corporations. Less discretionary money for companies means they are less likely to Dividend Yield 1.68% invest in IT solutions. Shares Outstanding 559 million • Gaining consistent market share in this industry is Market Capitalization 28,819.90 million difficult. Consistent growth across the industry for many years means that a sudden acceleration in Operating Margin 14.62% revenues could be harder to realize. Return on Equity 16.71%

12 Month Stock Performance Compared to S&P 500 Relative Performance

Data from FactSet9 2020E P/E Ratio and 2020E PEG Ratios

Comprables 16.7 Cognizant 15.2

Comprables 1.84 Cognizant 1.1 0 5 10 15 20

Executive Summary Consumer Confidence Index (CCI):

As of April 17th, 2020, we recommend a Hold rating for Consumer spending makes up approximately 70% of Cognizant Technology Solutions Corp. (NASDAQ: U.S. GDP.8 The consumer confidence index reflects how CTSH) for the University of Iowa Krause Fund. As optimistic consumers are about the economy and is also companies across the world weather the coronavirus an indicator of spending habits. This makes the CCI an outbreak, Cognizant has positioned itself to be important leading indicator of the health of the U.S. successful by cutting operating costs with its Fit for economy. For the IT consulting industry. Growth plan and growing a strong balance sheet. When the crisis ends, Cognizant will be the benefactor of an The CCI index was most recently measured to be 120 for expedited increase in demand to the online services that March 2020, a 12-month low. This was a 12.6-point they provide. However, company revenue growth targets drop from February, the largest one-month drop since have been revised down multiple times within the last August of 2011.9 We believe that this is not fully three years; with our new expectations of only 0.88% accurate of how low current consumer confidence is, as growth for 2020, this results in a target price of only $53 unemployment levels are expected to rise to at least in our DCF valuation. After considering our DDM 12.5% from the 4.4% reported in March, if not higher. valuation, our final target range is $50-$55. This Because of this, we expect CCI to drop another 14 points forecasted target range is 0%-7.5% above the current to a level of 106 when the next report comes out on price, which leads us to issue a Hold rating. April 28th.

Economic Outlook Coronavirus:

As coronavirus has spread across the world, large and small businesses alike have been forced to temporarily shut their doors. Demand for other businesses has completely disappeared as many consumers choose to stay at home. Others have been forced to eat the cost of moving their workforce out of the office and into a work-from-home position. All of these factors have put a temporary strain on companies’ net profits for the Data from Factset. 9 foreseeable future and will have a lasting effect. Inflation Rate (CPI):

In times of financial crisis, cutting costs is crucial for The inflation rate, or CPI, is indicative of how much the businesses that are trying to weather the storm and stay price of consumer goods is increasing. When inflation is afloat. Oftentimes consulting costs are one of the first higher than wage growth, it means overall purchasing cuts made. Experts currently estimate the pandemic will power for consumers is decreasing. When consumers decrease revenues in the consulting market by 19% from can not purchase as much, it will affect revenues for $160 billion to $130 billion.7 Cognizant provides their businesses. This lower purchasing power also makes it consulting services to companies across all industries, so harder for corporations to pay down debt. These two it is unlikely that they will be able to rely on consistent factors combined could lead to companies choosing to revenue growth from the industries who invest money in things other than IT solutions for their have experienced decreases in their earnings, especially business. transportation and hospitality corporations. The effects 9 of the pandemic will be unavoidable. In 2019, CPI was measured to be at 1.8%. For the year of 2020, we believe that because of reduced consumer spending during the coronavirus crisis, inflation will be in line with analyst’s expectations of 1.2%. This includes a deflationary period during Q2 2020.

Important disclosures appear on the last page of this report. rate is the most important pairing to Cognizant. Government IT Expenditures: Currently, one dollar is worth 76.8 rupees, up from about 69.66 rupees one year ago.9 This weakening of the rupee Government IT expenditures are a measure of how much has only accelerated during the coronavirus crisis, and government entities are spending on their technology we expect exchange rates to become even more infrastructure. This measure is not dependent on the favorable for Cognizant at 78.5 rupees per dollar by macroeconomy as much as corporate IT spending. 2020 year end. Increased spending by government entities on the entire IT industry would greatly benefit consultants like Overall Capital Markets Outlook Cognizant who advise on how to best implement those expenditures. In this market environment, its very difficult to make an educated prediction on where capital markets will be due In 2019, government IT spending totaled $88.78 billion. to the ongoing nature of the COVID-19 outbreak. While For the year 2020, spending is projected to be $91.98 the current lockdown hurting demand and profit could be billion.10 In a year of decreased corporate profits and over by the end of May, it will be up to companies to spending, this will provide some stability to the IT decide when they truly want to open up again, not industry. governments. While some market participants have been very forward looking, we will still not know what the total impact of the quarantine has been until all Q2 earnings have been released, which is not until after July. Even after that, many companies will still be recovering from lost profits and debt repayments, leading to new expenditure habits. This leads us to believe that market conditions for Cognizant will not be favorable until companies have recovered financially, and the timeline for that remains very much in question.

Data from Statista10 Industry Analysis

Exchange Rates: Industry Description:

Exchange rates measure how much value one country’s Information technology is the use of computers to currency has relative to another. Exchange rates are also manipulate, manage and process data and information used to gauge the health of different countries’ for businesses. IT creates a range of solutions for economies. Because of the increasing globalization of implementation and management of security, hardware, today’s economy, exchange rates are very important for software, data storage, cloud-based services, companies that operate in multiple countries, as it can infrastructure, and servers. Today IT shapes business affect profitability negatively or positively. and allows for better communication, data management, and accessibility. IT consulting advises businesses to Cognizant is based in the United States and reports their implement and use information technology to best financials in U.S. dollars. However, 65% of Cognizant’s achieve their goals.15 employees are located in the country of India.1 This also means that they have a sizable amount of capital deployed there in the form of infrastructure and PP&E.

A stronger Indian rupee against the U.S. dollar means that it would cost more for the company to do business there. Because the U.S. collects a large amount of its revenues from the United States, the Rupee to Dollar

Important disclosures appear on the last page of this report. infrastructure and update their software more frequently. Revenue streams5: This widespread demand for IT consultants has led to major players purchasing companies that are not IT General Consultancy Fees services companies. This leads to a convergence of -Consultancy fees make up the majority of revenues industries that allow consultants to better meet the needs for IT consulting companies of their clients (As shown in the infographic below). Training -Training is another stream of revenue for IT consultants. IT consultants train employees to use technology and products. This generates revenue for the consultants. Custom Programming -Custom programming matches experienced programmers to companies in need and charges a fee typically daily. Database Updates -Consultants will charge fees when they update Graphic sourced from Equiteq11 databases for clients. Implementation Fees More companies are bringing more operations online -Consultants will charge fees for other due innovations in cloud-computing technology, leading implementations of previous mentioned solutions. to more demand for consultants. This has also led to increased development in new cloud-computing 11 Revenues for the IT consulting sector have steadily solutions by new niche companies within the industry. increased at about 3% per year6, as shown in the Increased demand for consulting and implementation has following graph: been partly driven by the growing amount of data being used and stored by companies.

IT Consulting Sector Revenues Major Competitors 440 420 These are the largest IT Consulting players in the world by market cap (numbers denominated in millions): 400 Market

380 Company Cap Revenue InBillions 360 Accenture 111,314.09 43,215.01 IBM 106,973.21 77,147.00 340 Tata 2014 2015 2016 2017 2018 2019 Consultancy 89,172.64 22,134.80 6 Data from Statista Cognizant 28,819.90 16,783.00 Recent News and Industry Trends Fujitsu 19,894.48 35,641.00 The IT Consulting space is seeing a current trend of Data sourced from Factset9 increasing mergers and acquisitions as large industry players like IBM, Accenture, and Cognizant buy up However, this table does not reflect that despite the large smaller consulting companies for market-share, market capitalization of some of the players in this specialized-services, and expertise. There is expected to industry, the actual share of all revenue within the be a large influx of new players within the industry due industry by the top four companies is only around 5.0%.4 to low regulation and low start-up costs, so this trend of This also does not reflect the fact that many of these 11 M&A should continue. companies’ revenues do not only come from IT consulting; for example, only 21% of IBM’s revenues Growth and innovation within the technology sector has come from IT consulting.9 led companies in all industries to replace their older

Important disclosures appear on the last page of this report. A large part of what will set firms apart from each other Key Investment Strengths and Negatives during this period of expected revenue growth is Some pros include steady growth due to increased maintaining a healthy EBIT margin, which is standardly technology improvements by companies. New good amongst IT Services firms. Currently IBM leads innovations within tech come frequently and always revenues within the industry while still maintaining a ensure demand for IT consulting. Some cons of competitive EBIT margin, compared to its smaller investing in IT consulting include lower margins competitors.9 compared to rest of IT services industry. High competition could also damage many businesses. This There is still potential for new leaders in the industry due sub-industry is somewhat reliant on government to the increasing number of companies that are contracts for a large segment of its revenue, so it would transitioning from their traditional service methods to be unfavorable for the industry if there was a large digital service methods that require IT consulting decrease in government spending. companies to implement. This rapidly changing environment within the sector allows for new entrants, Company Analysis but only if they have adequate expertise and resources to serve their clients. The intellectual property is also patent Overview and Business Description: protected in most cases so there is no real threat of Cognizant is a leading provider of professional services substitution.4 focused on aiding their clients in the transformation of

their businesses through digital initiatives. Digital Many companies with established digital foundations services are large part of Cognizant’s product portfolio; will be better off when the next stage of technologies its sales are driven by the increasing demand of comes around. This may also be another reason for new businesses who want to compete with digital-native leaders and/or entrants during this digital time period. In companies (Companies that have already “gone IT consulting there has been new and returning key digital”).1 players in every cycle of secular trends, so it is very likely that a new entrant will emerge as a relevant Cognizant categorizes their services and solutions into company in creating the next type of value that four areas of practice: Digital Business, Digital companies are looking for4. Operations, Digital Systems & Technology, and

Consulting. These four areas of practice and Cognizant’s Overall, competition now is very high, and no one business segments are all supported by Cognizant company has been able to gain significant market share Accelerator, which focuses on innovation and the to differentiate themselves from the rest of the pack. application of the latest technologies to deal with client’s Many are looking to simply keep up with the latest needs.2 innovations in IT solutions and grow their expertise to serve clients better in the future.4 They operate out of their headquarters located in

Teaneck, NJ. Operations are in the United States, India, Industry Drivers and throughout Europe. However, a large majority of The main driver we found for the industry was their employees are located in India.1 mainstream adoption of new third-platform services which encompass cloud-based computing, big data Corporate Strategy analytics and mobile-based solutions. Anticipated future Cognizant provides services to four business segments growth in corporate profit once the coronavirus based off of industries that they service: Financial pandemic ends will also lead companies to bring in Services, Healthcare, Products and Resources, consultants to guide IT decisions and upgrades. Another Communications/Media & Technology.1 major driver will be more federal spending/government contracts in the future.4

Important disclosures appear on the last page of this report. Technology Consulting businesses help companies Revenue by Business Segment - implement solutions in the following areas: Products 2019 and Resources Financial Big Data and Analytics 22% Services Big data and analytics are a way to analyze and extract 35% data from sets too big for the naked eye or traditional Media, data analyzing software. Data is becoming ever more Communica tion, and important in society and consultants offer services to Technology Healthcare manage huge piles of data and make sense of it. 15% 28% Artificial intelligence and Cognition Source: Cognizant 10-K1 Artificial intelligence and cognition mean that machines

are taking in data and make sense to provide advice for Cognizant has put an emphasis on revenue growth. More business decisions going forward. specifically, they have been focused on increasing their existing market share, breaking into new markets and Robotic Process Automation geographic locations, and selling more products to Robotic Process Automation is a software application existing customers. Cognizant acquired five companies that synthesizes information. The implementation of it in 2019 to help reach these goals. Since then, they have helps save businesses costs by cutting tedious labor- commented on the difficulties associated with intensive jobs that should be automated. acquisitions and how they might hinder their growth expectations. “We may face challenges in effectively Systems Integration integrating acquired businesses into our ongoing Systems integration produces specific computer systems operations and in assimilating and retaining employees to meet client needs. The government is the largest of those businesses into our culture and organizational consumer. Commercial clients use systems integration to structure.”1 increase their net income by running operations more

efficiently. Cognizant and their competitors are not only focused on helping clients transform their businesses from Custom Programming traditional practices to digital practices; they have a Custom programming matches expert programmers to a strategy in place to account for the future needs of their business that may be lacking the personnel to perform clients. “Examples of areas of significant change include the work and does not want to hire because it would be digital-, cloud- and security-related offerings, which are much more expensive. continually evolving, as well as developments in areas such as AI, augmented reality, automation, blockchain, Update Services IoT, quantum computing and as-a-service solutions.” “Firms in the information services (IS) business develop Many companies believe technological developments and update proprietary databases and sometimes offer like block-chain and cloud-based storage are inevitable access to fee-based information sources” Information in their respective industries and also expect that many systems can quickly become obsolete; thus, companies of the suspected barriers to implementation will be less need constant updates. costly as it becomes more widespread.

Outsourcing Business Segments Outsourcing involves clients hiring a third party to Companies within this sub-industry tend to perform process data and manage tasks. Outsourcing can save operational consulting services to customers. firms huge expenses by allowing data to be processed in Operational consulting involves changing business data centers.5 operations to increase productivity. Consulting in this segment includes regulating risk and altering teams and individuals to achieve a company’s goals.11 Information

Important disclosures appear on the last page of this report. Life Cycle needing support for their new online workforce. He also noted that this crisis may accelerate the shift to using Cognizant is currently in the restructuring stage of the digital products that Cognizant offers.12 business life cycle. In order to compete they must be Product Line and New Products2 constantly trying to evolve to help deal with their clients’ evolving needs or face becoming obsolete. Digital Business Cognizant’s new “Fit for Growth” plan (a two-year COGNIZANT BIG DECISIONS restrucuring plan lasting until the end of 2020) aims to “A comprehensive, cloud-based data lake and analytics invest in expanding its capabilities and in data, digital solution that helps clients separate signal from noise to engineering, cloud, and Internet of Things solutions.1 solve specific business problems.” (Digital Products & This means Cognizant has to spend a substantial amount Platforms). Bigdecisions uses artificial intelligence to of their resources on retraining employees and bringing provide understanding of structured and unstructured in new skilled professionals to provide relevant expertise data. to deal with the dynamic demands of clients. To offset these costs, Cognizant changed many of their payment Digital Operations structures for employees and laid off over 10,000 in the COGNIZANT CATALYST divisions that the company was pivoting away from.1 Provides consolidated control of a company's financial

structure. “Enables best-in-class processes and the Financial Summary ability to extract insights to impact business outcomes, In their February 5th earnings call recapping Q4 and all as well as reduces costs through the use of machine of 2019, Cognizant reported $4.28B revenue for final learning and automation” (Digital Products & quarter, slightly beating estimates. Their reported EPS of Platforms). $1.07 also beat estimates by three cents.

They also increased their dividend from $0.80 to $0.88, Insurance a 10% increase. Cognizant started paying a dividend COGNIZANT INSURANCE INTAKE AUTOMATION back in 2018. COGNIZANT OPEN CLAIMS AUDIT COGNIZANT OPTIMA MEDWISE™ Guidance for 2020 falls within consensus with an COGNIZANT PROPERTY INSIGHTS estimate of $3.97-$4.13 EPS, guidance for operating COGNIZANT RISK PROFILE GATEWAY margin was 16%-17%, and guidance for revenue growth Cognizant’s insurance product line focuses on was between 2%-4%.12 facilitating the navigation of information. Also However, this was before the present coronavirus eliminating inconsistencies within the existing outbreak, and on April 9th, 2020, Cognizant recorded a framework and improving the speed of processes like coronavirus update for investors. In this call, information intake/delivery and identifying cost management claimed that Cognizant was well ahead management opportunities. estimates in terms of revenue during January and February. Entering March and April, Cognizant ran into Life Sciences problems with business demand and moving its COGNIZANT LAB INSIGHTS workforce online. They also noted that they had drawn “Helps scientific labs lower risks and make better down on their credit revolver and that their balance sheet decisions by enabling the transition from a manual or was strong enough to weather the crisis. Cognizant electronic lab environment to an integrated digital announced that they had stopped stock buybacks for the platform.” (Digital Products & Platforms). near future. Because of the uncertainty on when COGNIZANT PROTOCOL CREATOR quarantine would be lifted, and when demand may COGNIZANT SMARTTRIALS return to the normal, Cognizant removed guidance.12 Cognizant’s life sciences product line is focused on reducing risks and automating processes to improve However, CEO Brian Humphries noted that the speed and quality. company had shifted very smoothly to working from home, and that there was new demand from clients Market for the Company's Products

Important disclosures appear on the last page of this report. There is a worldwide demand for IT consulting services Cognizant uses a global delivery model to ensure that it due to the increasing number of companies taking their can serve clients all around the world with their full business online in order to increase efficiency and grow collection of product lines. “Our delivery model includes their profits. As the Information Age goes on and more employees deployed at client sites, local or in-country data needs to be collected and processed, companies will delivery centers, regional delivery centers and offshore require Cognizant’s expertise in implementing new delivery centers, as required to best serve our clients.1” infrastructure for customers and employees.4 During the current Coronavirus outbreak, Cognizant will focus on delivering and marketing their products online Financial services companies have recently seen a as most of their employees have moved to a work-from- demand for AI and analytics systems that improve home environment. payments, can track fraud, and improve customer experience. In healthcare, companies are requiring Significant Customers predictive data analytics for patient outcomes as well as Cognizant’s significant customers include major software for personalized care plans. For the Products financial institutions, as well as some of the largest and Resources segment that Cognizant serves, healthcare companies. Cognizant also provides its companies have recently seen a demand for new supply services to large companies within its two other vertical chain management tech, as well as mobile platforms to segments (Communication, Media, and Tech/Products support sales. For the Media, Communications, and and Resources). In general, most companies in the Technology segment, new solutions include cloud-based Fortune 500 have some type of business connection to storage, IoT (Internet of Things), and personalized user Cognizant for their IT services.12 Most large Fortune 500 experiences. This chart shows the ever-increasing companies will contract numerous IT consulting services demand for cloud-based solutions, which Cognizant is for different divisions throughout their business.1 This is looking to become an industry leader in.4 because of differing costs and specialties that different consulting firms may have for different divisions.

Costs of Goods Sold The IT services industry’s main “product” that it sells is expertise and guidance from its employees. Wages are estimated to account for 45.7% of total revenues within the industry.4

Demand for experienced IT professionals has gone up due to the level of competition within the industry; this will likely accelerate wage growth in the future. The computer hardware and software needed to create custom IT programs/solutions for clients makes up about 13.1% of total revenues for the industry.4 This slice of Chart from Statista13 COGS heavily depends on how much major suppliers Marketing Strategy and Customer Support like HP, Dell, and Windows are charging for hardware Cognizant has dedicated sales personnel in their offices and software. Because IT consulting is so service- all over the world. “We are increasing our investment in oriented, there are not any other costs that make up a sales and marketing professionals to help us expand significant portion of COGS.4 existing accounts and acquire new ones and amplify our brand's stature in the marketplace. These new Service Process investments are designed to support and enhance the In a typical transaction, Cognizant’s sales team will sales and marketing group, which works with our client contact a variety of businesses within their expertise and delivery team as the sales process moves closer to a offer one of their many IT products. Cognizant’s client's selection of a services provider.1” consultants will usually work with the client to come up with some type of custom solution to fit that company’s

Important disclosures appear on the last page of this report. needs, whether that be in data analytics, moving processes to a digital format, or using the cloud or During the current pandemic, Cognizant has offered a artificial intelligence for increased efficiency. Cognizant 25% pay raise to most of its employees located in executes on their plan and is paid according to whatever India.14 This will in turn have a negative effect on fee was agreed upon.1 margins.

Competition Due to the digital nature of the industry, companies in IT

services are very much globalized, and can compete Cognizant’s competition consists of a mix of large-cap anywhere in the world. This has been proven as most of and small-cap players within IT Services. Because of the Cognizant’s employees have successfully moved to a low barriers to entry within the industry, new work-at-home environment; they are still able to competitors emerge on a regular basis, and many are compete globally despite the lack of facetime with bought up in M&A transactions.4 customers.12 Many larger players within the industry

continue to buy smaller IT services companies in order Many large companies within industry are involved in to gain new patents, market share, and experienced many types of consulting, not just information staff.11 technologies. For example, Accenture, one of the largest consulting firms in the world, is involved in both Market concentration is very low within industry. New management and tech consulting. IBM, another offshore firms opening in international locations with extremely large firm, is involved in IT consulting among lower operating expenses could continue to dilute its many business segments.9 The IT consulting industry market revenues.1 Direct competitors to Cognizant is extremely competitive as clients’ wants and needs are include Accenture, Atos, Capgemini, Deloitte Digital. constantly evolving with changes and innovations within DXC Technology, EPAM Systems, Genpact, HCL the tech field.4 Technologies, IBM Global Services, Infosys Technologies, Tata Consultancy Services, and Wipro.3

Comparable Analysis

Market Cap of Top Five Companies

Accenture IBM Tata Consultancy Cognizant Fujitsu Limited Chart from IBISWorld4 0.00 40.00 80.00 120.00 Billions From this chart, you can see that increased competition has created downward pressure on profit margins within Data retrieved from Factset9 the industry. Competitors must stay on the cutting edge of information technology services to stay competitive This chart compares the market caps of all ten within the highly innovative industry. Competitors must comparable companies to Cognizant. Cognizant is also constantly be looking to have the best and most currently worth around $28 billion in market cap, putting experienced IT consultants, as quality of service is one it near the top of its competition. While IBM and Tata of the main factors in choosing one IT services company are much bigger in terms of market capitalization, over another. Wages are the largest COG’s expense for Cognizant still has the resources and capital necessary to industry players, as competition rises, wages will most put it ahead of its smaller competition. As shown in the likely rise as well.

Important disclosures appear on the last page of this report. following chart, Cognizant’s Enterprise Value to EBITDA ratio is average compared to its peers. Net Income Margin 2019

Tata Consultancy HCL Technologies EV to EBITDA Multiples Wipro 20.00 IBM Accenture 15.00 Cognizant 10.00 Capgemini 5.00 NTT DATA 0.00 Fujitsu 0% 5% 10% 15% 20% 25%

Data retrieved from Factset9

Data retrieved from Factset9 Management

The average tenure of management has been about eight To figure out why, we compared Cognizant’s sales years, but one-third of management has only been very growth to the same peers. In the following chart, you can recently hired (<1 year). This overhaul in management see that Cognizant had the lowest growth of any of its was due to the company falling behind its competitors in large peers that didn’t go negative. This is representative growth. Since this overhaul and the hire of Brian of how Cognizant has performed in the last five years, Humphries as the new CEO, Cognizant has been going and part of the reason why its EV/EBITDA multiple is through a transitionary period to catch up. This has been low. highlighted by the Fit for Growth plan, which had been

in place starting in 2018, but was massively overhauled 25 % Sales Growth 2019 YoY as new management came in. Management currently 20 owns less than 1% of total Cognizant shares.9 15 10 Key Catalysts for Price Change 5 In 2017, Cognizant started to underperform in 0 comparison to its competitors and the overall market -5 because of missed expectations and lower revenues. Because of this, Cognizant implemented the “Fit for Growth” plan. For Cognizant, their number one priority is executing on their “Fit for Growth” plan, and it remains the key catalyst for price change. Their future Data retrieved from Factset9 depends on whether Cognizant stars to beat future

growth expectations. The last metric that we compared across large IT consulting firms was Net Income Margin. Operating In the most recent earnings call (Q4 2019), Cognizant margin will be one of the most important factors for beat expectations and saw a jump in price. If Cognizant companies in this space going forward. Because of continues to execute well and returns to normal lowered profits due to the COVID-19 outbreak, revenues, there is potential to return to share prices last companies will need to keep wages down and margins seen at the end of 2017. However, earnings for potential high to stay profitable. Cognizant is again around the clients will have to remain positive for them to continue average and will need to improve to stay competitive. investing in IT services, and that will likely not happen

until the end of 2020. Maintaining excellent services from its IT consultants and professionals while keeping wage costs in control remains crucial. Gaining more clients outside of the U.S. (which currently accounts for

Important disclosures appear on the last page of this report. 77% of revenue share) would also be very beneficial for 2020 to find a target value of $53. For the PEG ratio Cognizant. analysis, we found the average 2020 PEG estimate for the five comparable companies, then took that times the 2020 estimated PEG ratio and five-year growth rate for Valuation Analysis Cognizant. After doing this, we came to a lower target Methods of Valuation price of $39.

In our economic analysis, we used four different We didn’t find the relative valuation model to be as valuation methods to find a range of forecasted values useful as the DCF because we felt that our comparable for our target company. These methods were a companies were not as similar to Cognizant as much as discounted cash flow (DCF) model, an economic profit we would’ve liked. It was difficult to find companies model, a dividend discount model (DDM), and a relative that operated in the same region in the IT consulting valuation model. Using these models, we found a target sector, while also being a similar size. For this reason, range of $53-$57. the range of $39 - $55 did not have the same weighting as the DCF’s intrinsic valuation. Discounted Cash Flow and Economic Profit Analysis Dividend Discount Model When determining numerous forecasts for Cognizant and its various financial statements, our group decided to The dividend discount model that we used calculated a look at historical trends, as well as take into account final target price of $50. This is mostly in line with our numerous events that we think will impact the DCF and Relative valuation models and is useful company’s future earnings. We believe that our DCF because Cognizant does pay a dividend. Our group model was the most accurate forecast because it best preferred using this method over the Relative valuation considered the potential losses in revenue from the model, but still think that the discounted cash flow coronavirus. method painted a better picture of the company as a whole and doesn’t just look at EPS and a relatively new Our final model reflected an intrinsic forecast price of dividend. $55. This came after forecasting free cash flows until 2025, and then continuing value to represent the Revenue Decomposition perpetual growth of the company. For our perpetual growth rate, we used 1.6%, which is slightly below For our revenue forecasts, our group looked at the four projections for annual U.S. GDP growth. After different segments that our company focuses on and sells discounting the projected period cash flows and the to: Financial Services, Healthcare, Products and perpetuity amount, we summed those amounts to find Resources, and Media, Communications, and the present enterprise value of the company. After Technology. Their final segment, Products and adding non-operating assets and subtracting non- Resources, is made up of various manufacturers, travel operating liabilities, we came to our intrinsic equity and hospitality, logistics, and energy companies. value. We did not have to account for a partial year. After dividing this final equity value by the total shares Financial Services and Healthcare are the two largest outstanding, we found that our target price was almost segments that Cognizant sells to. They generated $4.137 8% higher than the current market price of billion, and $4.147 billion in 2019, respectively.1 Because they are the most mature operating segments for Relative Valuation Method Cognizant, they have seen the least growth out of the four segments in recent years, with both segments For our relative valuation, we chose to look at how declining year-over-year for 2019. In the financial Cognizant’s P/E and PEG ratios compared to similar services segment, Cognizant has seen difficulty in competitors. After taking the projected P/E ratios of five growing their client base. For the healthcare sector, comparable companies for 2020, we multiplied the Cognizant has also had issues growing and keeping their averages of those by our Cognizant EPS projections for client base due to mergers and regulative uncertainty.1

Important disclosures appear on the last page of this report. Based off the most recent guidance as well as their coronavirus update, our group projected negligible Operating Expenses changes in revenue for the year 2020. For our other operating expenses, we also looked at In the Products and Resources segment, Cognizant has historical average. Cognizant’s SG&A expenses have seen consistently large revenue increases year-over-year. hovered around 19% of revenues for a long time, and we This segment has grown by over 10% for the last ten believe that they will be able to continue to do that, years.1 While growth for all segments will be muffled in especially as they focus on reducing costs during this 2020 due to the coronavirus, we still project 2% growth restructuring period. For depreciation and amortization, due to Cognizant’s newly acquired companies expenses will also stay relatively steady as Cognizant supporting this sector. has not shown any signs of changing the amount of PP&E they purchase every year. At the end of our For Media, Communications, and Technology, we projection period, we see them continuing to have believe that 2020 growth will also be very muted, at 2%. depreciation account for 16% of sales. However, this segment has recently been the best performing for Cognizant due to higher demands from Cost of Equity Technology companies for new digital solutions that the company has shifted towards. Cognizant has made Our cost of equity was calculated using the CAPM multiple acquisitions in recent years to meet these model. The risk-free rate at the time our model was demands.3 made was 0.68%, which is based off the yield of the 10- year U.S. treasury bond.9 Our beta used in the equation While this period of insignificant growth puts a serious was 1.15. This number was pulled from Factset3 and is damper on all intrinsic valuations, our projections for the the 52-week beta. Our equity risk premium used was period after 2021 remain optimistic. We believe that 6.15%, which was the implied risk premium for March growth should pick up for all sectors again as companies 2020 calculated by the Damodaran website.16 Using recover in the coming years and need to revitalize their these three values, we were able to come up with a cost IT infrastructure. Cognizant has made efforts to pivot of equity of 7.77% which was 94.3% of the weighting of towards new IT solutions for companies in the future by our weighted average cost-of-capital. the way of acquisitions, adjusting its workforce numbers, and retraining employees. The rewards for this Cost of Debt should start to materialize in 2021 as Cognizant finally leaves this transitionary period. Cognizant does not have any rated debt, so we could not use their credit ratings as a measure to find their implied Cost of Goods Sold (COGS) default premium. Because of this, we had to estimate a synthetic rating using another tool from the Damodaran When forecasting our cost of revenues, we looked at site. After this process, we came up with a rating of A historical averages of total revenues. We expect COGS for Cognizant, which carries a default premium of to hit a high point of 64% of total revenues in 2020 as 2.16%.17 After adding in the risk-free rate and wages have been increased during the coronavirus considering the tax effect on debt, we came up with a outbreak. However, due to the Fit for Growth plan and cost of debt of 2.28%. This became about 5.67% of the salary restructurings, we are confident that Cognizant total weighting in our WACC calculation, which came will be able to effectively be able to control their wages. up with a final cost of capital of 7.46% Because of this, we think that COGS should stabilize and slightly drop below the 63% point as Cognizant Sensitivity Analysis leaves their transitionary period and matures as a company. Due to wages being the most significant part Beta vs. Risk Free Rate of costs in IT consulting, we did not see any other This sensitivity table demonstrates how systematic risks significant factors in COGS. that affect WACC, like beta and the risk-free rate, would

affect our target price. Beta had a larger effect on the

Important disclosures appear on the last page of this report. price than the risk-free rate, but it is more likely in the future that the risk-free rate will change, barring some non-systematic change that affects Cognizant’s beta. For every 0.1 points that beta changed, the target price changed by about 11%, compared to an approximate 2.7% change for every 12 basis points that the risk free rate changed.

WACC vs. CV NOPLAT Growth

This sensitivity table takes a look at how different factors that both affect cash flow and continuing value. The data table shows that the cost of capital has a very large effect on our valuation; even 1% changes in the

WACC give significant changes to the target price. Changing the CV NOPLAT growth rate resulted in similar, yet smaller changes.

Cost of Equity vs Pre-Tax Cost of Debt

This table was chosen to see which of the two main factors that affect the cost of capital is more important. Because equity makes up over 90% of their capital, it is clear that it’s going to play a much larger factor in the final target price of Cognizant. When 1% changes to the cost of equity were made, the target valuation changed by over 10% every time. When pre-tax cost of debt was changed, the target price moved my less than 1%.

Equity Risk Premium vs. CV ROIC

Our group compared these two factors because they both impact the terminal value. As the CV ROIC percentage changed by 1%, it had a very negligible impact on the final implied target price because of its relatively small role in the calculation of the terminal value. On the other hand, for every 1% the ERP changes, the valuation price changes by almost 20% because of its crucial role in the calculation of WACC.

CV SG&A Growth vs. CV COGS Growth

For our last sensitivity table, we wanted to measure the effect of different CV spending rates on valuation. While changes of 0.5% in both rates have a noticeable effect, the cost of goods sold growth changed the target price by over 2%, compared to less than 1% by SG&A. This is because COGS spending is a larger percentage of total expenditures, therefore affecting free cash flow more.

Important disclosures appear on the last page of this report. Disclosure

This report was created by students enrolled in the Applied Equity Valuation (FIN:4250) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties, an example of the students' skills, knowledge, and abilities. Members of the Krause Fund are not registered investment advisors, brokers, or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

Important disclosures appear on the last page of this report. Works Cited From https://www.thebalance.com/components- of-gdp-explanation-formula-and-chart-3306015 1) Annual Reports. (n.d.). Retrieved February 13, 2020, from 9) Factset: https://my.apps.factset.com/today/ https://investors.cognizant.com/financials/sec- 10) “Federal government information technology filings/ spending 2011 to FY 2021,” Statista, 2017. https://www.statista.com/statistics/506409/unite 2) Digital Products and Platforms. (n.d.). Retrieved d-states-federal-it-expenditure/ February 14, 2020, from 11) “Global M&A IT Service 2018 Report,” https://www.cognizant.com/products-and- Equiteq, 2018. platforms https://www.equiteq.com/media/790035/equiteq 3) FactSet Cognizant Page, from -the-it-services-global-ma-report-2018.pdf https://my.apps.factset.com/navigator/company- 12) Cognizant Investor Relations, Cognizant. security/snapshot/CTSH-US https://investors.cognizant.com/home/default.asp 4) Lifschutz, Marisa. “IT Consulting in the US.” x IBISWorld, Aug. 2019, from 13) “Worldwide Cloud IT Infrastructure Market my.ibisworld.com/us/en/industry/54151/about. Spending,” Statista. April 2020, from https://www.statista.com/statistics/503686/world 5) Holt, David, and Jia Yi Young. “Industry wide-cloud-it-infrastructure-market-spending/ Surveys IT Consulting and Other Services.” Off 14) “Cognizant ups salaries by 25% for some India Campus Access - The University of Iowa Employees,” Reuters. March 27, 2020. Libraries, 22 Aug. 2019, from www-capitaliq- https://www.reuters.com/article/us-health- com.proxy.lib.uiowa.edu/CIQDotNet/Research/ coronavirus-cognizant-tech/cognizant-ups- DocumentViewer.aspx?documentViewerDocum salaries-by-25-for-some-india-employees-amid- entId=42299584. lockdown-idUSKBN21E1YU 6) Liu, Shanhong. “U.S. IT Consulting Revenue 15) “State of IT 2020 Report,” Spiceworks, 2020, 2022.” Statista, 13 Dec. 2018, from fromwww.statista.com/statistics/293746/revenue https://www.spiceworks.com/marketing/state-of- -of-it-consulting-in-the-us/. it/report/ 16) Damodaran, Aswath, “March 2020 Implied 7) “Coronavirus may hugely impact US consulting Equity Risk Premium,” Damodaran, March market” Consulting.us, March 30, 2020. 2020, from https://www.consulting.us/news/4008/coronavir http://pages.stern.nyu.edu/~adamodar/ us-may-hugely-impact-us-consulting-market 17) Damodaran, Aswath. “Synthetic Debt Rating 8) Amadeo, Kimberly. “Components of GDP Calculation Tool,” Damodaran, April 2020, Explained,” The Balance, January 30, 2020. from http://pages.stern.nyu.edu/~adamodar/

Important disclosures appear on the last page of this report. Cognizant Technology Solutions Corp. (NMS: CTSH) Revenue Decomposition- in millions

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Segment History Financial Services 5636 5845 5869 5869 5986 6196 6537 6831 7036 YoY Growth % 5.03% 3.71% 0.41% 0.00% 2.00% 3.50% 5.50% 4.50% 3.00% Healthcare 4263 4668 4695 4718 4860 5079 5409 5733 5905 YoY Growth % 10.13% 9.50% 0.58% 0.50% 3.00% 4.50% 6.50% 6.00% 3.00% Product & Resources 3040 3415 3770 3845 4268 4738 5306 5784 5958 YoY Growth % 14.29% 12.34% 10.40% 2.00% 11.00% 11.00% 12.00% 9.00% 3.00% Communication, Media & Technology 1871 2197 2449 2498 2673 2913 3205 3493 3598 YoY Growth % 17.67% 17.42% 11.47% 2.00% 7.00% 9.00% 10.00% 9.00% 3.00% Total Revenues 14810 16125 16783 16931 17788 18926 20457 21841 22497 YoY Growth % 9.81% 8.88% 4.08% 0.88% 5.06% 6.40% 8.09% 6.77% 3.00%

Revenues- Geographic Locations North America 11450 12293 12726 12698 12985 13532 14320 15071 15523 YoY Growth % 8.57% 7.36% 3.52% -0.22% 2.26% 4.21% 5.82% 5.24% 3.00% Europe-Total 2398 2837 3004 3048 3380 3691 4091 4368 4274 YoY Growth % 11.79% 18.31% 5.89% 1.45% 10.90% 9.20% 10.86% 6.77% -2.15% Rest of World 962 995 1053 1185 1423 1703 2046 2403 2700 YoY Growth % 20.85% 3.43% 5.83% 12.55% 20.07% 19.70% 20.10% 17.45% 12.36% Total Revenues 14810 16125 16783 16931 17788 18926 20457 21841 22497 YoY Growth % 9.81% 8.88% 4.08% 0.88% 5.06% 6.40% 8.09% 6.77% 3.00% Cognizant Technology Solutions Corp. (NMS: CTSH)

As Reported Annual Income Statement - In Millions Report Date 12/31/2017 12/31/2018 12/31/2019 2020E 2021E 2022E 2023E 2024E 2025E Revenues 14,810.0 16,125.0 16,783.0 16,930.9 17,787.6 18,925.9 20,456.7 21,841.4 22,496.7 Cost of revenues 9,152.0 9,838.0 10,634.0 10,846.7 11,280.5 12,013.8 12,854.7 13,754.6 14,167.2 Selling, general & administrative expenses 2,769.0 3,026.0 3,189.0 3,252.8 3,382.9 3,464.2 3,706.7 3,966.2 4,085.2 Depreciation & amortization expense 408.0 460.0 507.0 522.2 537.9 554.0 570.6 587.8 605.4 Income from operations 2,481.0 2,801.0 2,453.0 2,309.2 2,586.3 2,893.9 3,324.6 3,532.9 3,638.9

Net Interest income (expense), net 110.0 150.0 150.0 157.5 165.4 173.6 182.3 191.4 201.0 Foreign currency exchange gains (losses), net 67.0 (152.0) (65.0) (63.7) (62.4) (61.2) (60.0) (58.8) (57.6) Other income (expense), net (3.0) (2.0) 5.0 4.9 4.7 4.6 4.4 4.3 4.2 Total other income (expense), net 174.0 (4.0) 90.0 98.7 107.7 117.0 126.8 137.0 147.6 Income before provision for income taxes 2,655.0 2,797.0 2,543.0 2,407.8 2,694.0 3,011.0 3,451.4 3,669.9 3,786.5 Provision for income taxes 1,153.0 698.0 643.0 667.2 705.0 743.6 795.1 861.5 926.8 Income (expense) from equity method investment 2.0 2.0 (58.0) 2.9 2.9 2.9 2.9 2.9 2.9

Net income 1,504.0 2,101.0 1,842.0 1,743.6 1,991.9 2,270.3 2,659.3 2,811.3 2,862.6 Basic earnings per share 2.54 3.61 3.30 3.18 3.67 4.22 4.98 5.29 5.42 Weighted average shares outstanding - basic 593 582 559 547.8 542.3 538.3 534.5 531.3 528.6 Dividends per common share 0.80 0.80 0.88 0.88 0.88 0.92 0.92 0.92 Cognizant Technology Solutions Corp. (NMS: CTSH)

As Reported Annual Balance Sheet - In Millions Report Date 12/31/2017 12/31/2018 12/31/2019 2020E 2021E 2022E 2023E 2024E 2025E Assets Current Assets: Cash & cash equivalents 1,925.0 1,161.0 2,645.0 3,336.9 4,512.8 6,111.5 8,030.9 10,102.5 12,360.7 Short-term investments 3,131.0 3,350.0 779.0 780.2 781.5 782.7 784.0 785.3 786.5 Short-Term Receivables 3,222.0 3,190.0 3,256.0 3,640.1 3,824.3 4,069.1 4,398.2 4,695.9 4,836.8 Other current assets 833.0 909.0 931.0 968.2 1,007.0 1,057.3 1,110.2 1,176.8 1,247.4 Total current assets 9,111.0 8,610.0 7,611.0 8,725.5 10,125.6 12,020.7 14,323.3 16,760.4 19,231.4 Gross PP&E 2,840.0 3,184.0 3,351.0 3,552.1 3,765.2 3,991.1 4,190.6 4,400.2 4,532.2 Less: accumulated depreciation & ammortization 1,516.0 1,790.0 2,042.0 2,164.5 2,294.4 2,432.1 2,578.0 2,732.7 2,896.6 Add: Operating Leases 926.0 1,060.2 1,115.9 1,174.9 1,202.5 1,229.7 1,256.3 Property & equipment, net 1,324.0 1,394.0 2,235.0 2,447.7 2,586.7 2,734.0 2,815.2 2,897.2 2,891.9 Goodwill 2,704.0 3,481.0 3,979.0 3,979.0 3,979.0 3,979.0 3,979.0 3,979.0 3,979.0 Intangible assets, net 981.0 1,150.0 1,041.0 1,041.0 1,041.0 1,041.0 1,041.0 1,041.0 1,041.0 Deferred income tax assets, net 418.0 442.0 585.0 602.6 620.6 639.2 658.4 678.2 698.5 Long-term investment 235.0 80.0 17.0 17.1 17.2 17.3 17.4 17.5 17.6 Other noncurrent assets 448.0 689.0 736.0 754.4 773.3 792.6 812.4 832.7 853.5 Total assets 15,221.0 15,846.0 16,204.0 17,567.2 19,143.4 21,223.8 23,646.7 26,206.0 28,713.0 Liabilities and Stockholders' Equity Current Liabilities: Accounts payable 210.0 215.0 239.0 242.2 245.5 248.9 252.2 255.7 259.1 Deferred revenue 383.0 286.0 313.0 319.9 326.9 334.0 341.4 348.9 356.5 Short-term debt 175.0 9.0 38.0 38.0 38.0 38.0 38.0 38.0 38.0 Operating lease liabilities - - 202.0 208.1 214.3 220.7 227.4 234.2 241.2 Accrued expenses & other current liabilities 2,071.0 2,200.0 2,191.0 2,201.0 2,223.5 2,460.4 2,659.4 2,839.4 2,924.6 Total current liabilities 2,839.0 2,710.0 2,983.0 3,009.2 3,048.2 3,302.0 3,518.4 3,716.1 3,819.4 Deferred revenue, noncurrent 104.0 62.0 23.0 99.6 104.6 111.3 120.3 128.5 132.3 Operating lease liabilities, noncurrent - - 745.0 767.4 790.4 814.1 838.5 863.7 889.6 Deferred income tax liabilities, net 146.0 183.0 35.0 50.2 53.1 56.0 59.9 64.9 69.8 Long-term debt 698.0 736.0 700.0 686.0 672.3 658.8 645.7 632.7 620.1 Long-term income taxes payable 584.0 478.0 478.0 478.0 478.0 478.0 478.0 478.0 478.0 Other noncurrent liabilities 181.0 253.0 218.0 203.2 213.5 227.1 245.5 262.1 270.0 Total liabilities 4,552.0 4,422.0 5,182.0 5,293.5 5,360.0 5,647.4 5,906.2 6,146.0 6,279.2 Stockholders' equity: Additional paid-in capital and Class A common stock 55.0 53.0 38.0 38.0 38.0 38.0 38.0 38.0 38.0 Retained earnings (accumulated deficit) 10,544.0 11,485.0 11,022.0 12,273.7 13,783.4 15,576.5 17,740.5 20,060.1 22,433.9 Accumulated other comprehensive income (loss) 70.0 (114.0) (38.0) (38.0) (38.0) (38.0) (38.0) (38.0) (38.0) Total stockholders' equity 10,669.0 11,424.0 11,022.0 12,273.7 13,783.4 15,576.5 17,740.5 20,060.1 22,433.9

Total Liabilities and Stockholders' Equity 15,221.0 15,846.0 16,204.0 17,567.2 19,143.4 21,223.8 23,646.7 26,206.0 28,713.0 Cognizant Technology Solutions Corp. (NMS: CTSH)

As Reported Annual Cash Flow - In Millions Report Date 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019 Cash flows from operating activities: Net income 1228.6 1439.3 1623.6 1553.0 1504.0 2101.0 1842.0 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 179.9 208.1 330.0 379.0 443.0 498.0 526.0 Deferred income taxes (88.2) (99.6) (126.1) (91.0) 124.0 8.0 (306.0) Stock-Based Compensation expense 118.8 134.8 192.0 217.0 221.0 267.0 217.0 Other adjustments for non-cash items 25.6 11.4 58.8 58.0 (71.0) 125.0 119.0 Changes in assets and liablities: Trade accounts receivable (258.5) (259.3) (322.4) (330.0) (249.0) (365.0) 37.0 Other current & noncurrent assets (99.0) (99.5) (71.1) (163.0) (270.0) (8.0) 159.0 Accounts payable (12.1) 25.7 19.4 6.0 16.0 (4.0) 8.0 Deferred revenues, current & noncurrent 15.2 70.6 49.7 (38.0) 18.0 (86.0) 56.0 Other current & noncurrent liabilities 313.5 41.5 433.1 54.0 671.0 56.0 (159.0) Net cash flows from operating activities 1423.8 1473.0 2187.0 1645.0 2407.0 2592.0 2499.0 Cash Flows from investing activities: Purchases of property & equipment (261.6) (212.2) (272.8) (300.0) (284.0) (377.0) (392.0) Purchases of investments (1848.8) (2497.3) (3003.7) (5169.0) (4726.0) (3506.0) (1509.0) Proceeds from maturity or sale of investments 1573.4 2240.2 1907.6 4840.0 4644.0 3367.0 4106.0 Payments for business combinations, net of cash acquired, & equity & cost method (193.8) (2691.4) (1.7) (334.0) (216.0) (1111.0) (617.0) Net cash flows from investing activities (730.8) (3160.7) (1370.6) (963.0) (582.0) (1627.0) 1588.0 Cash Flows from financing activities: Issuance of common stock under stock-based compensation plans 117.5 101.5 131.4 176.0 189.0 181.0 159.0 Excess tax benefits on stock-based compensation plans 23.5 0.0 0.0 0.0 0.0 0.0 Repurchases of common stock (179.0) (248.3) (460.0) (512.0) (1889.0) (1261.0) (2247.0) Proceeds from term loan borrowings 0.0 1000.0 0.0 0.0 0.0 0.0 0.0 Repayment of term loan & borrowings & capital lease obligations 0.0 (14.2) (53.4) (57.0) (95.0) (91.0) (28.0) Repayment of acquired credit line & notes payable 0.0 (9.1) 0.0 0.0 0.0 0.0 0.0 Net change in notes outstanding under the revolving credit facility 0.0 650.0 (300.0) (350.0) 75.0 (75.0) 0.0 Proceeds from debt modification 0.0 0.0 0.0 0.0 0.0 25.0 0.0 Debt issuance costs 0.0 0.0 0.0 0.0 0.0 (4.0) 0.0 Dividends paid 0.0 0.0 0.0 0.0 (265.0) (468.0) (453.0) Net cash flows from financing activities (61.5) 1503.4 (682.0) (743.0) (1985.0) (1693.0) (2569.0) Effect of exchange rate changes on cash & cash equivalents (19.2) (18.6) (19.5) (30.0) 51.0 (36.0) (34.0) Increase (decrease) in cash & cash equivalents 612.3 (202.9) 114.9 (91.0) (109.0) (764.0) 1484.0 Cash & cash equivalents, at beginning of year 1570.1 2213.0 2010.1 2125.0 2034.0 1925.0 1161.0 Cash & cash equivalents, at end of year 2182.4 2010.1 2125.0 2034.0 1925.0 1161.0 2645.0 Cognizant Technology Solutions Corp. (NMS: CTSH)

As Reported Annual Cash Flow - In Millions Report Date 2020E 2021E 2022E 2023E 2024E 2025E Cash flows from operating activities: Net income 1,743.6 1,991.9 2,270.3 2,659.3 2,811.3 2,862.6 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 522.2 537.9 554.0 570.6 587.8 605.4 Deferred income taxes 32.8 20.9 21.5 23.1 24.8 25.3 Changes in assets and liablities: Short-Term Recievables (384.1) (184.2) (244.7) (329.1) (297.7) (140.9) Other current assets (37.2) (38.7) (50.3) (52.9) (66.6) (70.6) Other non-current assets (18.4) (18.9) (19.3) (19.8) (20.3) (20.8) Accounts payable 3.2 3.3 3.3 3.4 3.4 3.5 Deferred revenues, current & noncurrent (83.5) (12.1) (13.9) (16.3) (15.6) (11.5) Other current & noncurrent liabilities (4.8) 32.7 250.6 217.4 196.6 93.0 Net cash flows from operating activities 1,773.8 2,332.8 2,771.4 3,055.6 3,223.6 3,346.0 Cash Flows from investing activities: Changes in short-term investments (1.2) (1.2) (1.3) (1.3) (1.3) (1.3) Changes in long-term investments (0.1) (0.1) (0.1) (0.1) (0.1) (0.1) Changes in PP&E before Depreciation (212.7) (139.0) (147.3) (81.2) (82.0) 5.3 Changes in Intangibles ------Changes in Goodwill ------Net cash flows from investing activities (214.1) (140.3) (148.7) (82.6) (83.4) 4.0 Cash Flows from financing activities: Proceeds from issuance (payment) of ST debt ------Change in Operating lease liabilities, current & noncurrent 28.4 29.3 30.1 31.0 32.0 32.9 Proceeds from issuance (payment) of long-term debt (14.0) (13.7) (13.4) (13.2) (12.9) (12.7) Total Dividends paid (482.1) (472.4) (463.0) (474.4) (464.9) (455.6) Change in Long-term income taxes payable ------Share Buybacks (336.5) (497.2) (516.6) (537.2) (564.1) (598.8) Net cash flows from financing activities (804.2) (954.1) (962.9) (993.7) (1,009.9) (1,034.1) Effect of exchange rate changes on cash & cash equivalents (63.7) (62.4) (61.2) (60.0) (58.8) (57.6) Increase (decrease) in cash & cash equivalents 691.9 1,176.0 1,598.7 1,919.4 2,071.6 2,258.3 Cash & cash equivalents, at beginning of year 2,645.0 3,336.9 4,512.8 6,111.5 8,030.9 10,102.5 Cash & cash equivalents, at end of year 3,336.9 4,512.8 6,111.5 8,030.9 10,102.5 12,360.7 Cognizant Technology Solutions Corp. (NMS: CTSH)

Common Size Income Statement- % of sales Revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Cost of revenues 59.54% 59.84% 59.92% 60.12% 61.80% 61.01% 63.36% 64.06% 63.42% 63.48% 62.84% 62.97% 62.97% Selling, general & administrative expenses 19.54% 19.85% 20.20% 20.25% 18.70% 18.77% 19.00% 19.21% 19.02% 18.30% 18.12% 18.16% 18.16% Depreciation & amortization expense 1.95% 1.95% 2.62% 2.66% 2.75% 2.85% 3.02% 3.08% 3.02% 2.93% 2.79% 2.69% 2.69% Income from operations 18.97% 18.37% 17.25% 16.97% 16.75% 17.37% 14.62% 13.64% 14.54% 15.29% 16.25% 16.18% 16.18%

Net Interest income (expense), net 0.55% 0.58% 0.55% 0.71% 0.74% 0.93% 0.89% 0.93% 0.93% 0.92% 0.89% 0.88% 0.89% Foreign currency exchange gains (losses), net -0.20% -0.34% -0.22% 0.45% -0.94% -0.39% -0.38% -0.35% -0.32% -0.29% -0.27% -0.26% Other income (expense), net -0.44% 0.00% -0.01% 0.01% -0.02% -0.01% 0.03% 0.03% 0.03% 0.02% 0.02% 0.02% 0.02% Total other income (expense), net 0.11% 0.38% 0.17% 0.50% 1.17% -0.02% 0.54% 0.58% 0.61% 0.62% 0.62% 0.63% 0.66% Income before provision for income taxes 19.09% 18.75% 17.43% 17.48% 17.93% 17.35% 15.15% 14.22% 15.15% 15.91% 16.87% 16.80% 16.83%

Provision for income taxes 5.19% 4.72% 4.35% 5.97% 7.79% 4.33% 3.83% 3.94% 3.96% 3.93% 3.89% 3.94% 4.12% Income (expense) from equity method investment 0.00% 0.00% 0.00% 0.01% 0.01% 0.01% -0.35% 0.02% 0.02% 0.02% 0.01% 0.01% 0.01%

Net income 13.89% 14.02% 13.08% 11.51% 10.16% 13.03% 10.98% 10.30% 11.20% 12.00% 13.00% 12.87% 12.72% Cognizant Technology Solutions Corp. (NMS: CTSH)

Common Size Balance Sheet- % of sales Report Date 12/31/2017 12/31/2018 12/31/2019 2020E 2021E 2022E 2023E 2024E 2025E Assets Current Assets: Cash & cash equivalents 13.00% 7.20% 15.76% 19.71% 25.37% 32.29% 39.26% 46.25% 54.94% Short-term investments 21.14% 20.78% 4.64% 4.61% 4.39% 4.14% 3.83% 3.60% 3.50% Short-Term Receivables 21.76% 21.67% 21.51% 21.50% 21.50% 21.50% 21.50% 21.50% 21.50% Other current assets 5.62% 3.75% 3.44% 5.72% 5.66% 5.59% 5.43% 5.39% 5.54% Total current assets 61.52% 53.40% 45.35% 51.54% 56.93% 63.51% 70.02% 76.74% 85.49% Property & equipment, net 8.94% 8.64% 13.32% 14.46% 14.54% 14.45% 13.76% 13.26% 12.85% Goodwill 18.26% 21.59% 23.71% 23.50% 22.37% 21.02% 19.45% 18.22% 17.69% Intangible assets, net 6.62% 7.13% 6.20% 6.15% 5.85% 5.50% 5.09% 4.77% 4.63% Deferred income tax assets, net 36.25% 63.32% 90.98% 90.32% 88.03% 85.97% 82.81% 78.72% 75.37% Long-term investment 1.59% 0.50% 0.10% 0.10% 0.10% 0.09% 0.09% 0.08% 0.08% Other noncurrent assets 3.02% 4.27% 4.39% 4.46% 4.35% 4.19% 3.97% 3.81% 3.79% Total assets 102.78% 98.27% 96.55% 103.76% 107.62% 112.14% 115.59% 119.98% 127.63% Liabilities and Stockholders' Equity Current Liabilities: Accounts payable 1.42% 1.33% 1.42% 1.43% 1.38% 1.31% 1.23% 1.17% 1.15% Deferred revenue 2.59% 1.77% 1.86% 1.89% 1.84% 1.77% 1.67% 1.60% 1.58% Short-term debt 1.18% 0.06% 0.23% 0.22% 0.21% 0.20% 0.19% 0.17% 0.17% Operating lease liabilities 0.00% 0.00% 1.20% 1.23% 1.20% 1.17% 1.11% 1.07% 1.07% Accrued expenses & other current liabilities 13.98% 13.64% 13.05% 13.00% 12.50% 13.00% 13.00% 13.00% 13.00% Total current liabilities 19.17% 16.81% 17.77% 17.77% 17.14% 17.45% 17.20% 17.01% 16.98% Deferred revenue, noncurrent 0.70% 0.38% 0.14% 0.59% 0.59% 0.59% 0.59% 0.59% 0.59% Operating lease liabilities, noncurrent 0.00% 0.00% 4.44% 4.53% 4.44% 4.30% 4.10% 3.95% 3.95% Deferred income tax liabilities, net 12.66% 26.22% 5.44% 7.53% 7.53% 7.53% 7.53% 7.53% 7.53% Long-term debt 4.71% 4.56% 4.17% 4.05% 3.78% 3.48% 3.16% 2.90% 2.76% Long-term income taxes payable 3.94% 2.96% 2.85% 2.82% 2.69% 2.53% 2.34% 2.19% 2.12% Other noncurrent liabilities 1.22% 1.57% 1.30% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% Total liabilities 30.74% 27.42% 30.88% 31.27% 30.13% 29.84% 28.87% 28.14% 27.91% Stockholders' equity: Total Common Equity 0.37% 0.33% 0.23% 0.22% 0.21% 0.20% 0.19% 0.17% 0.17% Retained earnings (accumulated deficit) 71.20% 71.22% 65.67% 72.49% 77.49% 82.30% 86.72% 91.84% 99.72% Accumulated other comprehensive income (loss) 0.47% -0.71% -0.23% -0.22% -0.21% -0.20% -0.19% -0.17% -0.17% Total stockholders' equity 72.04% 70.85% 65.67% 72.49% 77.49% 82.30% 86.72% 91.84% 99.72%

Total Liabilities and Stockholders' Equity 102.78% 98.27% 96.55% 103.76% 107.62% 112.14% 115.59% 119.98% 127.63% Cognizant Technology Solutions Corp. Weighted Average Cost of Capital (WACC) Estimation

Fiscal Years Ending Dec 31st Cost of Equity: Risk-Free Rate 0.68% Beta 1.15 Equity Risk Premium 6.15% Cost of Equity 7.77%

Cost of Debt: Risk-Free Rate 0.68% Implied Default Premium 2.16% Pre-Tax Cost of Debt 2.84% Marginal Tax Rate 19.8% After-Tax Cost of Debt 2.28%

Market Value of Common Equity: MV Weights Total Shares Outstanding 559.00 Current Stock Price $52.53 MV of Equity 29,364.27 94.33%

Market Value of Debt: Short-Term Debt Current Portion of LTD 38 Long-Term Debt 700 PV of Operating Leases 1027.37 PV of operating leases MV of Total Debt 1,765.37 5.67%

Market Value of the Firm 31,129.64 100.00%

Estimated WACC 7.46% Cognizant Technology Solutions Corp. Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth of NOPLAT 1.6% CV Year ROIC 16.06% WACC 7.45646% Cost of Equity 7.76795%

Fiscal Years Ending Dec 31st 2020E 2021E 2022E 2023E 2024E 2025E

DCF Model: Free Cash Flow (FCF) 416.0 390.3 376.4 418.1 406.9 397.3 Continuing Value (CV) 42816.8 PV of FCF 387.1 338.0 303.3 313.6 284.0 29884.9

Value of Operating Assets: 31510.9 Non-Operating Adjustments Add: Marketable securities 779.0 Less: PV of Operating Leases -1027.4 Less: ESOP -310.7 Less: Debt -738.0 Less: Accured severance pay 0.0 Value of Equity 30213.8 Shares Outstanding 559.0 Intrinsic Value of Last FYE $ 54.05 Implied Price as of Today $ 55.03

EP Model: Economic Profit (EP) 1085.0 1232.8 1390.5 1636.2 1619.3 1489.7 Continuing Value (CV) 25508.2 PV of EP 1009.7 1067.6 1120.7 1227.2 1130.3 17804.0

Total PV of EP 23359.5 Invested Capital (last FYE) 8151.4 Value of Operating Assets: 31510.9 Non-Operating Adjustments Add: Marketable securities 779.0 Non-Controlling interest 0.0 Less: PV of Operating Leases -1027.4 Less: Debt -738.0 Less: ESOP -310.7 Less: Accured severance pay 0.0 Value of Equity 30213.8 Shares Outstanding 559.0 Intrinsic Value of Last FYE $54.05 Implied Price as of Today $ 55.03

Cognizant Technology Solutions Corp. Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec 31st 2020E 2021E 2022E 2023E 2024E 2025E

EPS $ 3.18 $ 3.67 $ 4.22 $ 4.98 $ 5.29 $ 5.42

Key Assumptions CV growth of EPS 1.80% CV Year ROE 12.76% Cost of Equity 7.77%

Future Cash Flows P/E Multiple (CV Year) 14.39249 EPS (CV Year) $ 5.42 Future Stock Price $ 77.94 Dividends Per Share 0.88 0.88 0.88 0.92 0.92 0.92 Discounted Cash Flows $ 49.75 0 1 2 3 4 5 Intrinsic Value as of Last FYE $ 49.75 Implied Price as of Today $ 50.54

Cognizant Technology Solutions Corp. Relative Valuation Models FACTSET EPS EPS Est. 5yr PEG PEG Ticker Company Price 2020E 2021E P/E 20 P/E 21 EPS gr. 2020E 2021E VRTU Virtusa $29.79 $2.44 $2.54 11.70 11.70 -21.20% 1.00 1.00 ACN Accenture $169.45 $7.65 $8.12 22.10 20.90 10.20% 3.00 2.80 TTEC TTEC Holdings $34.33 $1.94 $2.25 17.70 15.30 2.80% 1.30 1.10 532540-IN Tata Consultancy $22.69 $1.14 $1.18 21.00 19.30 8.00% 2.70 2.50 532281-IN HCL Technologies $ 6.26 $0.52 $0.54 11.00 11.6 15.10% 1.20 1.30 Average 16.70 15.76 2.98% 1.84 1.74 CTSH Cognizant $48.45 $3.18 $3.67 15.2 13.2 6.807798 1.1 1.0

Implied Relative Value: P/E (EPS20) $ 53.15 P/E (EPS21) $ 57.88 PEG (EPS20) $ 39.87 PEG (EPS21) $ 43.51 Cognizant Technology Solutions Corp. Key Management Ratios

Fiscal Years Ending Dec 31st 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E

Liquidity Ratios: Current Ratio: (Current Assets/Current Liabilities) 3.21 3.18 2.55 2.90 3.32 3.64 4.07 4.51 5.04 Quick ratio: (Cash+Accounts Receivable)/Current Liabilities) 1.81 1.61 1.98 2.32 2.74 3.08 3.53 3.98 4.50 Cash Ratio: (Cash/Current Liabilities) 0.68 0.43 0.89 1.11 1.48 1.85 2.28 2.72 3.24 Operating cash flow turnover: (Net Cash Flow from Operating Activites/Current Liabilties) 0.85 0.96 0.84 0.59 0.77 0.84 0.87 0.87 0.88 Asset-Management Ratios: Total Asset Turnover: (Total Revenues/Total Assets) 0.97 1.02 1.04 0.96 0.93 0.89 0.87 0.83 0.78 Fixed Asset Turnover: (Total Revenues/Property and Equipment Net) 11.19 11.57 7.51 6.92 6.88 6.92 7.27 7.54 7.78 Receivables Turnover: (Total Revenues/Receivables) 4.60 5.05 5.15 4.65 4.65 4.65 4.65 4.65 4.65 Financial Leverage Ratios: Debt ratio: (Total Liabilities/Total Assets) 0.30 0.28 0.32 0.30 0.28 0.27 0.25 0.23 0.22 Debt to Equity: (Total Liabilities/Total Stockholder's Equity) 0.43 0.39 0.47 0.43 0.39 0.36 0.33 0.31 0.28 Equity Ratio: (Total Stockholders Equity/Total Assets) 0.70 0.72 0.68 0.70 0.72 0.73 0.75 0.77 0.78

ROA: (Net Income/Total Assets) 9.88% 13.26% 11.37% 9.93% 10.40% 10.70% 11.25% 10.73% 9.97% ROE: (Net Income/Total Stockholder's Equity) 14.10% 18.39% 16.71% 14.21% 14.45% 14.58% 14.99% 14.01% 12.76% Operating Margin: (Operating Income/Total Revenue) 16.75% 17.37% 14.62% 13.64% 14.54% 15.29% 16.25% 16.18% 16.00% Profit Margin: (Net Income/Total Revenues) 10.16% 13.03% 10.98% 11.00% 11.86% 12.11% 12.97% 12.71% 12.56% Payout Policy Ratios: Dividend Payout Ratio: (Dividends Paid/Net Income) 17.62% 22.28% 24.59% 27.65% 23.96% 20.86% 18.49% 17.39% 16.99% Total Payout Ratio: ((Dividends Paid + Total Repurchases)/Net Income) 143.22% 82.29% 146.58% 46.95% 48.68% 43.15% 38.04% 36.60% 36.83%

Cognizant Technology Solutions Corp. Present Value of Operating Lease Obligations

Fiscal Years Ending Dec 31st 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Year 1 124.6 135.7 148.3 134.2 159.0 188.0 226.0 249.0 237.1 250.6 264.8 272.7 280.7 280.1 Year 2 121.2 119.4 125.3 117.4 136.0 178.0 197.0 217.0 210.4 222.4 235.0 242.0 249.1 248.6 Year 3 106.0 96.8 105.1 95.6 126.0 156.0 157.0 167.0 175.4 185.3 195.9 201.7 207.6 207.2 Year 4 81.8 78.6 81.7 86.2 105.0 124.0 121.0 132.0 140.8 148.7 157.2 161.9 166.6 166.3 Year 5 62.2 55.4 71.7 68.4 76.0 87.0 90.0 96.0 105.4 111.4 117.7 121.2 124.7 124.5 Thereafter 228.5 187.4 214.5 164.9 173.0 210.0 197.0 273.0 286.4 302.6 319.8 329.3 338.9 338.3 Total Minimum Payments 724.3 673.3 746.7 666.7 775.0 943.0 988.0 1134.0 1155.4 1221.0 1290.5 1328.9 1367.6 1365.1 Less: Cumulative Interest 70.7 67.7 75.5 64.0 72.3 87.8 87.3 106.6 95.2 105.1 115.6 126.3 137.9 108.8 PV of Minimum Payments 653.6 605.7 671.2 602.7 702.7 855.2 900.7 1027.4 1060.2 1115.9 1174.9 1202.5 1229.7 1256.3

Implied Interest in Year 1 Payment 18.6 17.2 19.1 17.1 20.0 24.3 25.6 29.2 30.1 31.7 33.4 34.2 34.9 35.7

Pre-Tax Cost of Debt 2.84% 2.84% 2.84% 2.84% 2.84% 2.84% 2.84% 2.84% 2.84% 2.84% 2.84% 2.84% 2.84% 2.84% Years Implied by Year 6 Payment 0.0 3.4 3.0 2.4 2.3 2.4 2.2 2.8 2.7 2.7 2.7 2.7 2.7 2.7 Expected Obligation in Year 6 & Beyond 228.5 55.4 71.7 68.4 76.0 87.0 90.0 96.0 105.4 111.4 117.7 121.2 124.7 124.5

Present Value of Lease Payments PV of Year 1 121.2 132.0 144.2 130.5 154.6 182.8 219.8 242.1 230.6 243.7 257.5 265.2 272.9 272.4 PV of Year 2 114.6 112.9 118.5 111.0 128.6 168.3 186.3 205.2 199.0 210.3 222.2 228.8 235.5 235.1 PV of Year 3 97.5 89.0 96.7 87.9 115.8 143.4 144.3 153.5 161.2 170.4 180.1 185.5 190.9 190.5 PV of Year 4 73.1 70.2 73.0 77.1 93.9 110.9 108.2 118.0 125.8 133.0 140.6 144.7 149.0 148.7 PV of Year 5 54.0 48.2 62.3 59.5 66.1 75.6 78.2 83.5 91.6 96.8 102.3 105.4 108.4 108.2 PV of 6 & beyond 193.2 153.3 176.4 136.7 143.7 174.1 163.8 224.9 236.4 249.8 264.0 271.9 279.8 279.3 Capitalized PV of Payments 653.6 605.7 671.2 602.7 702.7 855.2 900.7 1027.4 1060.2 1115.9 1174.9 1202.5 1229.7 1256.3 Cognizant Technology Solutions Corp. Valuation of Options Granted under ESOP

Current Stock Price $52.53 Risk Free Rate 0.68% Current Dividend Yield 1.68%

Average Average B-S Value Range of Number Exercise Remaining Option of Options Outstandingof Options Shares Price Life (yrs) Price Granted Range 1 4.500 0.00 $ 215 Range 2 2.0 0.00 $ 96 Range 3 Range 4 Range 5 Range 6 Range 7 Range 8 Range 9 Total 6.5 $ - $ 310.70 Risk Free Rate $ 55.03 0.32% 0.44% 0.56% 0.68% 0.80% 0.92% 1.04% 0.85 94.90 91.48 88.26 85.30 82.38 79.68 77.13 0.95 79.97 77.41 74.98 72.74 70.49 68.42 66.44 1.05 68.64 66.65 64.76 63.00 61.23 59.58 58.00 Beta 1.15 59.52 57.95 56.44 55.03 53.61 52.28 51.00 1.25 52.62 51.33 50.09 48.92 47.75 46.64 45.58 1.35 46.76 45.69 44.66 43.69 42.70 41.78 40.88 1.45 41.88 40.98 40.11 39.29 38.45 37.66 36.90

WACC $ 55.03 4.46% 5.46% 6.46% 7.46% 8.46% 9.46% 10.46% 1.02% 92.00 72.09 60.04 52.01 46.28 42.00 38.68 1.22% 97.27 74.81 61.60 52.95 46.88 42.38 38.92 1.42% 103.25 77.81 63.28 53.96 47.50 42.78 39.18 CV NOPLAT Growth 1.62% 110.06 81.11 65.09 55.03 48.17 43.20 39.45 1.82% 117.91 84.78 67.06 56.18 48.87 43.64 39.73 2.02% 127.05 88.87 69.21 57.41 49.62 44.11 40.03 2.22% 137.81 93.47 71.57 58.74 50.41 44.60 40.34

Cost of Equity $ 55.03 4.77% 5.77% 6.77% 7.77% 8.77% 9.77% 10.77% 1.34% 123.64 89.92 69.50 55.85 46.12 38.85 33.23 1.84% 122.56 89.30 69.10 55.58 45.92 38.69 33.10 2.34% 121.50 88.70 68.71 55.30 45.72 38.54 32.98 Pre-Tax Cost of Debt 2.84% 120.46 88.09 68.32 55.03 45.51 38.39 32.86 3.34% 119.43 87.50 67.93 54.76 45.32 38.23 32.74 3.84% 118.42 86.91 67.55 54.49 45.12 38.08 32.62 4.34% 117.42 86.33 67.17 54.23 44.92 37.93 32.51

Equity Risk Premium $ 55.03 3.15% 4.15% 5.15% 6.15% 7.15% 8.15% 9.15% 13.06% 139.66 93.76 69.03 53.63 43.17 35.62 29.95 14.06% 141.06 94.69 69.71 54.16 43.60 35.98 30.24 15.06% 142.26 95.50 70.31 54.63 43.97 36.28 30.50 CV ROIC 16.06% 143.32 96.21 70.83 55.03 44.29 36.55 30.73 17.06% 144.26 96.84 71.29 55.39 44.58 36.79 30.93 18.56% 145.47 97.65 71.89 55.85 44.95 37.10 31.19 20.06% 146.50 98.34 72.39 56.24 45.27 37.36 31.40

CV COGS Growth $ 55.03 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 1.50% 60.23 58.89 57.54 56.20 54.85 53.50 52.16 2.00% 59.85 58.50 57.15 55.81 54.46 53.11 51.77 2.50% 59.46 58.11 56.77 55.42 54.07 52.73 51.38 CV SG&A Growth 3.00% 59.07 57.72 56.38 55.03 53.68 52.34 50.99 3.50% 58.68 57.34 55.99 54.64 53.30 51.95 50.60 4.00% 58.29 56.95 55.60 54.25 52.91 51.56 50.22 4.50% 57.91 56.56 55.21 53.87 52.52 51.17 49.83