The market is too pessimistic about earnings durability. Large service contracts should support modest growth despite AI-related pricing pressure. My twelve-month target is $263.80, without assuming a discretionary-spending boom.
Key points
- $263.80 a share is my October 2027 target, supported by modest growth.
- $15.52 a share is my FY28 earnings forecast, including higher financing costs.
- $6.1 billion is the FY27 funding gap before employee share-sale proceeds and other cash movements.
The call
The market is too pessimistic about steady earnings. Today’s price equals roughly 14 times my FY28 profit forecast. At 17 times, it instead requires earnings of $12.64 a share, below FY26 adjusted earnings. Neither interpretation gives much credit to durable client relationships.
Growth reaches beyond tech clients in Q4 FY26- Revenue ($ billions)
- Year-over-year growth (%)
Source: October 1, 2026 earnings release; revenue in $ billions, growth excludes currency changes.
I expect modest growth, not an AI boom. Large service contracts and broader client work should outweigh automation savings passed to customers. But the industry recovery is narrow: Cognizant’s latest filing implies only 1.4% growth excluding acquisitions and third-party product sales. Calendar-year budgets should test this view by spring 2027.
Valuation
| October 2027 valuation input | My estimate |
|---|
| FY28 revenue | $81.0 billion |
| FY28 operating margin | 16.1% |
| FY28 diluted earnings | $15.52 a share |
| Core service-business multiple | 16 times earnings |
| AI implementation franchise premium | 1 additional times earnings |
| Twelve-month target | $263.80 a share |
Earnings assume a 25.5% tax rate, 588 million diluted shares and $500 million of costs outside operations in FY28. The modest franchise premium rewards trusted implementation relationships, not software-like growth, and disappears if automation shrinks client spending. A stress case of $13.50 earnings at 14 times produces $189 a share, making the upside sufficient for Buy but not Strong Buy.
The earnings multiple decides the next year's returnAnalyst estimates, October 14, 2026; FY28 earnings held at $15.52 a share; stock values in dollars.
Risks
- Pricing falls faster than delivery costs: watch FY27 margins and revenue per employee.
- Acquisitions consume cash without improving growth: watch debt, integration costs and growth excluding purchases.
- Clients delay payment or government work weakens: watch collection days, cash conversion and contract disclosures.
What would change my mind
Two consecutive FY27 quarters with no growth excluding acquisitions and operating margins below 15.5% would overturn my earnings-durability thesis.