This technology stock could be among the hardest hit if Trump cracks down on work visas
Morgan Stanley on Tuesday downgraded Cognizant Technology Solutions to equal weight from overweight on concern President Donald Trump could soon crack down on work visa programs. "Investors continue to be wary of CTSH's dependence on skilled labor visas and the potential for Congress to pursue new regulation which may have an adverse impact on the cost or availability of visas in the market," equity analyst Brian Essex wrote in a research note. Cognizant Technology, a New Jersey-based company that provides outsourcing services to a range of industries, is one of the main users of nonimmigrant visas, also known as H1-Bs. "While the new administration has placed a greater focus on border security and illegal immigration, it has become apparent that skilled labor reform may not be immune," Essex said. Cognizant Technology Solutions, 1 year Source: FactSet Indeed, reports on Monday showed a draft of an executive order that could limit work visa programs that tech companies rely on to hire thousands of skilled workers from around the world. "Our country's immigration policies should be designed and implemented to serve, first and foremost, the U.S. national interest," the draft states, according to a copy obtained by Bloomberg News. Although the new law hasn't been officially announced, Morgan Stanley says the legislative risk could keep pressure on shares of Cognizant. On what could be ahead, Essex writes: "Our conversations with policy experts indicate a greater probability of more diligent enforcement of current laws as opposed to changing them (potentially impairing trade relations) by significantly overhauling skilled labor legislation but at this point we have few details and lack reliable information. Regardless of outcome, we believe that ongoing headline risk will remain another headwind for CTSH multiple expansion." Apart from potential limits on work visa programs, Morgan Stanley says tax reform on border adjustments , could further present challenges for Cognizant. "We estimate tax reform could drive 10-18 percent EPS downside for FY18 [fiscal 2018]," Essex wrote. "Although policy analysts and experts we have spoken with have handicapped its probability at 30 percent to 40 percent, we believe the magnitude of downside risk from tax reform-driven border adjustment is underappreciated by the market," he said. In the past 12 months, Cognizant derived about 22 percent of its revenue from overseas operations, according to data from S & P Capital IQ. Investors may already be behind this trade, as Cognizant shares are down 8.5 percent in the past four trading sessions. On Tuesday, Morgan Stanley reduced its 12-month price target for Cognizant to $59 from $61. "With only 10 percent upside to our price target, we believe incremental risk relative to the reward is material enough to keep investors on the sidelines due to the unquantifiable nature of the risks, the unpredictable nature of the current legislative environment, and relative attractiveness of other opportunities within our coverage universe," Essex said. — CNBC's Michael Bloom contributed to this story.

Cognizant Technology Solutions office in India. Madhu Kapparath | Mint | Getty Images