Friday, September 30, 2016

Cognizant Drops on Payment Investigation

Of course we had great news this morning with earnings from COST & MKC, but we don't live in a perfect world. This morning it was announced by Cognizant(CTSH that it discovered possibly improper payments regarding facilities in India. President Gordon Coburn has resigned on the issue. Here is a write-up from Reuters. The company had voluntarily notified the DOJ and SEC.

It's most likely that local officials were bribed in order to get certain facilities built, or approved. In India unfortunately corruption is slightly more commonplace than the USA. Funny we think it's bad here. The rest of the world can have it even worse.

Overall I'm not pleased with this. The stock is dropping hard, and that will make it really tough for the portfolio to beat the index again this quarter on the back of weakness in our tobacco names. Sigh. Oh well. I'm not going to sell shares as I did with HAIN. This doesn't appear on the surface to be an accounting restatement issue. I can see a fine coming through the pipeline, and operating performance slow for a bit while management is distracted. I'm going to wait and see on this one to see if it's prudent to hold, cut shares, or sell altogether. Unfortunately it's very hard to sift out this type of activity from company financials.

The shares are down 15% this morning.

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