Cognizant Secures ERIKS IT Services Deal, Reinforcing Large-Contract Momentum Amid Valuation Concerns

What happened

Cognizant has entered a five-year agreement with ERIKS to manage all operational IT services and modernize their technology stack, as announced in a PR release. This deal aligns with the company's strategy of winning large, transformative contracts, which is already evident from its TTM bookings of $27.5 billion and a book-to-bill ratio of approximately 1.3x. Cognizant recently raised its 2025 revenue guidance to $21.05-$21.10 billion with an adjusted operating margin around 15.7%, indicating solid execution and growth. However, the stock trades at $72.88, significantly above the DCF intrinsic value of $39.92, and faces risks from competitive intensity and AI adoption normalization. Thus, while this partnership supports ongoing performance, it does not materially alter the balanced risk/reward profile that underpins the current hold recommendation.

Implication

This agreement demonstrates Cognizant's continued ability to secure multi-year contracts, which should help sustain revenue growth and margin stability in line with guidance. It fits within the company's AI-led transformation focus and integrated practices, as highlighted in recent filings. However, with the stock priced at a premium—EV/EBITDA around 73x and above intrinsic value—incremental wins like this are likely already priced in. Investors should monitor whether such deals contribute to sustained bookings above 1.2x book-to-bill and margin improvements, as per the master report's watch items. Overall, unless valuation corrects or growth accelerates beyond current projections, the hold thesis remains appropriate.

Thesis delta

The news confirms Cognizant's execution on large deals, supporting the positive trend noted in the master report. No significant shift in thesis is warranted, as valuation remains stretched and competitive risks unchanged. Maintain hold with continued focus on booking conversions and profitability metrics.