Cognizant Technology Solutions CorporationCTSHNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $190.19 per share(market-calibrated)

+196.4%

Upside to Fair Value

Current

$64.17

Pure Model

$200.83

Fair Value

$190.19

Bull Case

$248.07

Bear Case

$159.74

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

0.50%

Calibrated Growth

2.61%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $200.83.

What's Driving This Ratingfor CTSH

✓

CapEx already efficient

CapEx at 1.43% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 15.58% — below the sector mature average of 25.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $7.0B (22.53% margin).

→

Moderate revenue growth

Analyst consensus projects 6.05% revenue growth, fading to 3.75% by Year 10. Revenue reaches $30.9B (vs $21.1B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $152.73/share (22.1x terminal FCF) while exit multiple gives $248.92/share (42.4x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 325bps below the model's 3.75%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 65.98% indicates efficient cash generation. FCF reaches $5.1B by Year 10 (16.58% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.96

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)8.81%

Cost of Debt

Pre-tax Cost of Debt2.03%

Tax Rate30.00%

After-tax Cost of Debt1.42%

Equity Weight (E/V)95.14%

Debt Weight (D/V)4.86%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (95.14% × 8.81%) + (4.86% × 1.42%)

= 8.45%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$22.4B	$25.1B	$25.7B	$27.6B	$30.9B
EBIT	$3.5B	$3.9B	$4.5B	$5.6B	$7.0B
Tax	$1.0B	$1.2B	$1.3B	$1.7B	$2.1B
NOPAT	$2.4B	$2.7B	$3.1B	$3.9B	$4.9B
+ Depreciation	$581M	$651M	$667M	$718M	$801M
- Capex	$321M	$359M	$368M	$396M	$442M
- Δ NWC	$126M	$147M	$91M	$98M	$110M
Free Cash Flow	$2.6B	$2.9B	$3.3B	$4.1B	$5.1B
Discount Factor	0.922	0.784	0.667	0.567	0.444
Present Value	$2.4B	$2.3B	$2.2B	$2.3B	$2.3B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.1B

Terminal Growth Rate3.75%

WACC8.45%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$113.0B

PV of Terminal Value$50.2B

Exit Multiple Method

Year 10 EBITDA$7.8B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$217.1B

PV of Terminal Value$96.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$22.9B

PV of Terminal Value$50.2B

Enterprise Value$73.1B

(-) Net Debt-$326M

Equity Value$73.5B

Shares Outstanding481M

Price per Share$152.73

Exit Multiple Method

PV of Projected FCFs$22.9B

PV of Terminal Value$96.5B

Enterprise Value$119.4B

(-) Net Debt-$326M

Equity Value$119.7B

Shares Outstanding481M

Price per Share$248.92

Pure Model Fair Value

$200.83

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
6.45%	$253.47	$266.28	$283.84	$309.39	$315.08
7.45%	$217.58	$224.65	$233.62	$245.40	$261.54
8.45%	$191.25	$195.58	$200.83	$207.32	$215.58
9.45%	$170.59	$173.43	$176.77	$180.75	$185.58
10.45%	$153.67	$155.63	$157.88	$160.50	$163.58

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$159.74

149.0% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.20

Base Case

$200.83

213.0% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 0.96

Bull Case

$248.07

286.6% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 0.81

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth6.05%

Year 3 Revenue Growth6.32%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin15.58%

Terminal EBIT Margin25.00%

Tax Rate30.00%

Historical Capex / Rev1.43%

NWC / Revenue9.83%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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