Cognizant (CTSH) is trying to cash in on ESG investing. Interestingly, Cognizant is staking its business on an ESG platform.
ESG stands for environment, Social, and governance investing. In particular, Cognizant claims its ESG platform helps companies achieve ESG goals. Those goals include reducing greenhouse gas emissions.
Cognizant Technology Solutions Corp (NASDAQ: CTSH) has a net zero goal, and a plan to use 100% renewable energy by 2026. Additionally, Cognizant has a social strategy to achieve “gender equality.”
Cognizant’s governance strategy includes a Supplier Standards program and a Supplier Diversity Program. Cognizant claims to have received praise from the Human Rights Campaign, Forbes, Fortune, LinkedIn, Microsoft (MSFT), Brandon Hall Group, Transparency, and the Indian Industry Water Management Conservation.
Cognizant is a consulting company that works with many organizations. Consulting services Cognizant provides include Application Services, Artificial Intelligence, Business Process Services, Modernization, Digital Experience, Digital Strategy, Process Automation, Platform Solutions, Infrastructure Services, Quality Engineering, Security, Software Engineering, and Sustainability Services.
Will ESG Hurt Cognizant?
Strangely, Cognizant (CTSH) could play with fire with its foray into ESG. ESG could hurt Cognizant because ESG is now a political controversy in the United States.
Some Republican politicians have launched an all-out war on ESG in the United States. For example, former Vice President and probable presidential candidate Mike Pence (R-Indiana) wrote a Wall Street Journal op-ed headlined “Republicans Can Stop ESG Political Bias.”
Similarly, a Texas law bans stay agencies from doing business with firms that take any action to penalize fossil fuel companies, The Los Angeles Times reports. I think that law could penalize Cognizant. Additionally, the American Legislative Exchange Council, a lobbying group financed by the Koch family, is promoting a model anti-fossil fuel law for state legislators.
Moreover, West Virginia State Treasurer Riley Moore told BlackRock, Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley, US Bancorp, and Wells Fargo (WFC) they were not eligible for state banking contracts because of “moves against the fossil fuel industry,” Pensions & Investments reports. I suspect Moore’s ban could apply to Cognizant. ESG is a political issue in West Virginia because the state is America’s second-largest coal producer in 2020.
Hence, there is a well-organized backlash against ESG in the US that is financed by fossil fuel interests. Such a backlash could hurt Cognizant by making it impossible to sell consulting services to many governments and businesses.
Is Cognizant (CTSH) making money?
It appears ESG could be good for business at Cognizant (CTSH). For example, Stockrow estimates Cognizant’s revenues grew by 7% in the quarter ending on 30 June 2022.
Comparatively, the revenues grew by 9.66% in the quarter ending on 31 March 2022 and 14.63% in the quarter ending on 30 June 2021. Cognizant’s quarterly revenues grew from $4.585 billion on 30 June 2021 to $4.826 billion on 31 March 2022 to $4.906 in the quarter ending on 30 June 2022.
Cognizant reported a quarterly gross profit of $1.787 billion on 30 June 2022. The quarterly gross profit grew from $1.574 billion on 31 March 2022 and $1.565 billion on 30 June 2021. Similarly, the quarterly operating income grew from $696 million on 30 June 2021 to $724 billion on 31 March 2022 to $760 on 30 June 2022.
Cognizant reported quarterly operating cash flow of $528 million on 30 June 2022. The quarterly operating cash flow grew from $306 million on 31 March 2022 and $541 million on 30 June 2021.
Cognizant is losing money, it reported a quarterly ending cash flow of -$424 million on 30 June 2022. Yet, Cognizant can generate enormous amounts of money. It reported a quarterly ending cash flow of $2.192 billion on 31 March 2022. The quarterly ending cash flow rose from -$605 million on 30 June 2021.
What Value Does Cognizant Have?
Cognizant (CTSH) offers some value. It had $2.32 billion in cash and short-term investments on 30 June 2022. The cash and short-term investments grew from $1.85 billion on 30 June 2021 and fell from $2.319 billion on 31 March 2022.
In contrast, Cognizant had $17.258 billion in total assets on 30 June 2022. The total assets grew from $16.829 billion on 30 June 2021 but fell from $17.434 billion on 31 March 2022.
Impressively, Cognizant’s total debt fell from $1.729 billion on 30 June 2021 to $608 million on 30 June 2022. Hence, Cognizant is paying its debts. Cognizant reported a quarterly financing cash flow of -$450 million on 30 June 2022.
Mr. Market thinks Cognizant has some value. He paid $68.73 for Cognizant shares on 3di August 2022. Cognizant’s share price fell from $74.90 on 3 August 2022. I think Mr. Market overvalues Cognizant at that price. Yet, Cognizant is a money making company that is cheap.
Appealingly, Cognizant has scheduled three 27₵ quarterly dividends through 28 February 2023. Cognizant shares were offering a $1.08 forward dividend and a 1.57% forward dividend yield on 3 August 2022.
Hence, Cognizant is a cheap stock with a growing business that pays a dividend. Some people will consider a Cognizant value investment. I consider Cognizant worth examining.
Will Americans turn against Big Business?
I think Cognizant (CTSH) is one of many stocks threatened by an interesting change in American politics.
To explain, for the first time in over a century, American politicians have been threatening corporations because of corporate policies. For example, Florida Governor Ron DeSantis (R-Jacksonville), another potential presidential candidate, is blasting what he calls the Walt Disney Corp’s (DIS) attack on parents. DeSantis is attacking Disney because the company criticized his some of his policies.
DeSantis’s attack on Disney like Pence’s attack on ESG is a dramatic shift in Republican policy. Indeed, the attacks are part of a shift in American politics. The shift is a political climate in which politicians of both parties regularly and publicly attack corporations and try to punish them.
Such attacks are unusual in modern American politics. Indeed, for decades, both the Democrats and Republicans have refused to criticize business or interfere in its operations. This hands off policy was part of what I like to call a long truce between business and politics in America.
Under the truce, which has been in effect since World War II. Politicians agreed to not attack or criticize business if business stayed out of politics. For example, even at the height of the Moral Majority crusade of the 1980s and 1990s, Republican politicians refused to criticize Hollywood.
This truce ended a long conflict between Big Business and politics that erupted in the Robber Baron Era of the 1890s and lasted through the 1930s. During that era, there were periods of all-out war between the administrations of presidents Theodore Roosevelt (R-New York) and William Howard Taft (R-Ohio) and some of the nation’s largest businesses, for example John D. Rockefeller Senior’s Standard Oil monopoly. Additionally, politicians tried to ban entire industries, brewing and distilling, through Prohibition and the 18th Amendment.
Is There a War on Business?
Today, that truce has broken down. I think the truce broke down because some companies are adopting explicitly political policies such as ESG and promotion of gay rights.
Consequently, some Republicans now view those companies as Democratic or progressive and hostile to their agenda. Similarly, some Democrats could begin attacking companies they view as Republican such as fossil fuel producers.
Moreover, there are some business interests, such as fossil fuel companies, that feel corporate policies (such as ESG) threaten their industries. Hence, Republicans could attract donation checks by attacking the ESG movement.
A war between business and politicians could begin in America. This war could damage business and generate popular hostility to some businesses. All investors need to be aware of this new political climate because it could affect many companies in many industries.
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