Cognizant Technology Solutions (NASDAQ:CTSH) and International Business Machines (NYSE:IBM) are both large-cap computer and technology companies, but which is the superior investment? We will contrast the two companies based on the strength of their valuation, earnings, analyst recommendations, dividends, risk, profitability and institutional ownership.
Institutional & Insider Ownership
87.7% of Cognizant Technology Solutions shares are held by institutional investors. Comparatively, 55.7% of International Business Machines shares are held by institutional investors. 0.3% of Cognizant Technology Solutions shares are held by insiders. Comparatively, 0.2% of International Business Machines shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.
Analyst Ratings
This is a summary of recent recommendations for Cognizant Technology Solutions and International Business Machines, as reported by MarketBeat.com.
| Sell Ratings | Hold Ratings | Buy Ratings | Strong Buy Ratings | Rating Score |
---|
Cognizant Technology Solutions | 4 | 6 | 14 | 0 | 2.42 |
International Business Machines | 0 | 10 | 6 | 0 | 2.38 |
Cognizant Technology Solutions currently has a consensus price target of $74.7273, suggesting a potential downside of 7.86%. International Business Machines has a consensus price target of $140.0667, suggesting a potential upside of 6.59%. Given International Business Machines' higher probable upside, analysts plainly believe International Business Machines is more favorable than Cognizant Technology Solutions.
Dividends
Cognizant Technology Solutions pays an annual dividend of $0.88 per share and has a dividend yield of 1.1%. International Business Machines pays an annual dividend of $6.52 per share and has a dividend yield of 5.0%. Cognizant Technology Solutions pays out 22.1% of its earnings in the form of a dividend. International Business Machines pays out 50.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. International Business Machines has raised its dividend for 20 consecutive years. International Business Machines is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.
Volatility & Risk
Cognizant Technology Solutions has a beta of 1.12, meaning that its stock price is 12% more volatile than the S&P 500. Comparatively, International Business Machines has a beta of 1.25, meaning that its stock price is 25% more volatile than the S&P 500.
Valuation and Earnings
This table compares Cognizant Technology Solutions and International Business Machines' top-line revenue, earnings per share (EPS) and valuation.
| Gross Revenue | Price/Sales Ratio | Net Income | Earnings Per Share | Price/Earnings Ratio |
---|
Cognizant Technology Solutions | $16.78 billion | 2.63 | $1.84 billion | $3.99 | 20.37 |
International Business Machines | $77.15 billion | 1.52 | $9.43 billion | $12.81 | 10.27 |
International Business Machines has higher revenue and earnings than Cognizant Technology Solutions. International Business Machines is trading at a lower price-to-earnings ratio than Cognizant Technology Solutions, indicating that it is currently the more affordable of the two stocks.
Profitability
This table compares Cognizant Technology Solutions and International Business Machines' net margins, return on equity and return on assets.
| Net Margins | Return on Equity | Return on Assets |
---|
Cognizant Technology Solutions | 8.78% | 19.04% | 11.79% |
International Business Machines | 10.53% | 48.69% | 6.59% |
Summary
International Business Machines beats Cognizant Technology Solutions on 9 of the 17 factors compared between the two stocks.