By Tom Kilgore
April 20, 2017
President Donald Trump’s order to “buy American, and hire American” should certainly help some U.S. companies and hurt some foreign-based ones, but it could hurt U.S.-based Cognizant Technology Solutions Corp. more than others.
Trump signed an executive order on Tuesday to review the H-1B visa program, to ensure the visas are granted to only the most skilled workers, and to minimize the use of waivers to “Buy American” policies, among other things.
Cognizant’s stock CTSH, -0.36% dropped 1.4% on Tuesday after the order was signed, before bouncing 0.2% on Wednesday. It was still up 5.6% since the election, compared with the S&P 500 index’s SPX, +0.30% 9.3% rally.
Analyst Arvind Ramnani at Pacific Crest said Cognizant, which provides information technology and consulting services, could be one of the companies hurt the most by the “hire American” part of Trump’s order. “Cognizant’s business could be negatively affected by abnormal attrition rates, which could decrease revenue per IT professional and potentially hurt profitability,” Ramnani wrote in a note to clients.
Annualized turnover was 15.6% for the fourth quarter of 2016, down from 19.1% in the same period a year ago, but up from an average rate of 13.2% for the three years before that, according to recent regulatory filings.
A substantial portion of Cognizant’s assets and operations are overseas, primarily in India, but the company pays taxes as a U.S. company. As of Dec. 31, the company had 260,200 total employees, with just 47,500, or 18%, in North America. The rest are in various countries throughout the world, including 188,000, or 72%, in India, filings show.
The “vast majority” of the company’s technical professionals in the U.S. are Indian nationals who currently hold visas and work permits, the company stated.
Meanwhile, Cognizant is headquartered in Teaneck, NJ, which is less than 20 miles from Trump Tower as the crow flies. The company derived 78% of its revenue from North America in 2016, filings show, and has derived 73% of its revenue over the past 12 months from the U.S., according to FactSet.
“Any anti-outsourcing legislation, if adopted, and negative perceptions associated with offshore outsourcing could impair our ability to service our customers and adversely affect our business, results of operations and financial condition,” the company stated.
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Trump’s rhetoric has already had an impact, as the number of H-1B visa applications is down by 16% this year, the first decline in five years, Ramnani said.
The company did not immediately respond to a request for further comment.
In response to the uncertainties related to Trump’s policies, the company said some of the things it planned to do include “local hiring” and locating most new development center facilities in “tax incentivized” areas.
Among Cognizant’s top U.S.-based customers are Biogen Inc. BIIB, -0.33% Herc Holdings Inc. HRI, -4.00% KeyCorp KEY, +4.09% McDonald’s Corp. MCD, +0.32% PetSmart Inc. and Elliott Capital Advisors LP, according to an analysis of data provided by FactSet.
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