The first quarter of 2021 marked the fastest economic growth in decades, which drove increased consumer spending. And the stock market has remained bullish despite analysts’ projections of a correction.
The U.S.’ real gross domestic product (GDP) increased at a 6.5% annual rate in the second quarter of 2021, indicating a continuing economic recovery. In addition, government stimulus, including tax credits and loans to businesses and the Fed’s accommodative monetary policy, are buoying investor optimism about corporate performance and earnings. As a result, the economy is expected to continue growing in the second half of 2021.
Growth stocks with stable financials are expected to benefit significantly from the economic growth. However, market volatility, triggered primarily by the resurgence of COVID-19 cases, has lately caused a price dip in quality growth stocks Cognizant Technology Solutions Corporation (CTSH) and Incyte Corporation (INCY). So, we think it could be wise to bet on them right now.
Cognizant Technology Solutions Corporation (CTSH)
CTSH in Teaneck, N.J. is a professional services company that provides consulting and technology and outsourcing services in North America, Europe, and internationally. The company operates through four segments: Financial Services; Healthcare; Products and Resources; and Communications, Media, and Technology.
On July 20, CTSH agreed to acquire TQS Integration, a privately owned global industrial data and intelligence company based in Lismore, Ireland. The acquisition should enhance the company’s end-to-end smart factory capabilities and improve client experience.
CTSH’s revenues improved at a 3.9% CAGR over the past three years, while its net income increased at a 5% CAGR over this period. In addition, the company’s EPS improved at an 8.4% CAGR over the past three years.
CTSH’s revenues increased 14.6% year-over-year to $4.59 billion in its fiscal second quarter, ended June 30. Its income from operations grew 49% from its year-ago value to $696 million, while its net income improved 41.8% year-over-year to $512 million. The company’s EPS increased 44.8% year-over-year to $0.97.
Analysts expect CTSH’s revenues to increase 11.2% year-over-year to $4.72 billion in the current quarter, ending September 2021. A $1.05 consensus EPS estimate for the current quarter indicates an 8.5% rise from the same period last year. CTSH has an impressive earnings surprise history also; it beat the consensus EPS estimates in three of the trailing four quarters.
Over the past five days, CTSH declined marginally to close yesterday’s trading session at $73.00. The stock has gained 6.2% over the past month. Its median price target of $82.83 represents a potential 13.8% upside from its last closing price.
It is no surprise that CTSH has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock also has a B grade for Momentum and Quality. Among the 13 stocks in the A-rated Outsourcing - Tech Services industry, CTSH is ranked #3.
To see additional CTSH ratings for Growth, Sentiment, Stability, and Value, click here.
Incyte Corporation (INCY)
INCY is a biopharmaceutical company that is focused on the discovery, development, and commercialization of proprietary therapeutics globally. INCY is based in Wilmington, Del.
On August 3, INCY and Eli Lilly and Company (LLY) shared new data from the Phase 3 COV-BARRIER sub-study indicating effectiveness and reduced deaths among patients with COVID-19. If it receives the final authorization, the company is likely to garner substantial revenues, given the resurgence of the COVID-19 cases.
INCY’s revenues have increased at a 16.3% CAGR over the past three years, while its total assets grew at a 17.7% CAGR over the period. Furthermore, its tangible book value has improved at a 24.7% CAGR over the past three years.
INCY’s total revenues increased 3% year-over-year to $705.71 million in its fiscal second quarter, ended June 30. Its product and royalty revenues stood at $695.71 million, up 17% from the same period last year. Its cash and cash equivalents balance rose 35.4% year-over-year to $1.80 billion in the six months ended June 30.
A $739.01 million consensus revenue estimate for the fiscal third quarter (ending September 2021) indicates a 19.1% increase year-over-year. The Street expects the company’s EPS to rise 215.2% from the prior year quarter to $0.72 in the current quarter. In addition, INCY surpassed Street’s EPS estimates in three of the trailing four quarters.
INCY lost 8.5% over the past month to close yesterday’s trading session at $76.30. The stock has declined 1.4% over the past five days. Its $92.86 median price target indicates a potential 21.5% upside from its last closing price.
INCY has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In addition, INCY has an A grade for Quality, and a B for Value. It is ranked #9 among the 505 stocks in the Biotech industry.
Click here to view additional INCY ratings for Growth, Momentum, Sentiment, and Stability.
Click here to checkout our Healthcare Sector Report for 2021
CTSH shares were trading at $72.61 per share on Monday afternoon, down $0.39 (-0.53%). Year-to-date, CTSH has declined -10.82%, versus a 19.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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