On November 28, 2016, American investment management firm Elliot Management Corporation (Elliot) sent a letter to the management board of American Multinational IT Services Provider Cognizant Technology Solution (CTS) expressing concern over the stock performance of CTS. The stock was observed to be underperforming against its peers and standard industry indices like S&P 500 Index, etc. The analysts’ team at Elliot headed by Jesse Cohn (Jesse) found that the lack of a standard reinvestment policy and the use of age-old operational strategies were not rendering any benefits to the shareholders and were the primary reason for underperformance of the stock. Jesse believed that a suitable operational strategy aimed at improving the operational margins and standard capital allocation policy would not only provide the desired benefits to the shareholders, but also help CTS retain its position in the ever changing IT sector at the global level. The present case study provides information about the stock performance and operational performance of CTS, and the steps initiated by the company to improve its market standing. It provides the scope to discuss whether the measures initiated will provide the desired results to the organization and ultimately benefit the shareholders.
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The case is structured to achieve the following teaching objectives:
To understand the factors that would have an impact on shareholders’ return and stock performance
To evaluate the impact of operational performance and capital allocation policy on shareholders’ returns
To analyze the impact of share buyback and dividend payments on the stock performance