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Why Is Cognizant (CTSH) Up 2.2% Since Last Earnings Report?
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It has been about a month since the last earnings report for Cognizant (CTSH - Free Report) . Shares have added about 2.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cognizant due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Cognizant reported fourth-quarter 2021 non-GAAP earnings of $1.10 per share, which beat the Zacks Consensus Estimate by 5.77% and improved 64.2% year over year.
Revenues of $4.777 million missed the consensus mark by 0.13%. However, the top line increased 14.2% year over year. At constant currency (cc), revenues grew 11%. The reported figure stayed between management’s revenue guidance of $4.75-$4.79 billion.
Digital revenues accounted for 44% of revenues and increased 19% year over year.
Top-Line Details
Financial services revenues (32.4% of revenues) increased 18.8% year over year at cc to $1.547 million. An increase in digital revenues and strong contribution from acquisitions drove growth.
Healthcare revenues (28.7% of revenues) increased 8.2% year over year at cc to $1.370 million, driven by growth in life sciences businesses and increased demand for its services among pharmaceutical companies. Strong demand for the company’s integrated software solutions from healthcare clients contributed to the top-line growth.
Products and Resources revenues (23.4% of revenues) increased 18% year over year at cc to $1,116 million owing to strong demand from retail, consumer goods, travel and hospitality clients, and a solid contribution from acquisitions.
Communications, Media and Technology revenues (15.6% of revenues) were $744 million, up 13.1% from the year-ago quarter at cc. Acquisitions and increased demand from technology clients drove growth.
Region-wise, revenues from North America increased 9% year over year at cc and accounted for 73.2% of total revenues.
Revenues from Europe increased 35.5% from the year-ago quarter at cc and made up 19.6% of total revenues. Revenues from the U.K. and Continental Europe increased 28.4% and 42.2% year over year, at cc, respectively.
Rest of the World revenues surged 25.7% at cc and represented 7.2% of total revenues.
Operating Details
Selling, general & administrative (SG&A) expenses, as a percentage of revenues, decreased 270 bps year over year to 18.2%.
Net headcount increased 31% year over year. Quarterly annualized attrition was 35%, down from 37% reported in the previous quarter.
Cognizant reported a non-GAAP operating margin of 15.3%, which increased 300 bps year over year.
Balance Sheet
Cognizant had cash and cash equivalents of $1.79 billion as of Dec 31, 2021, compared with $2.41 billion as of Sep 30, 2021.
The company has no significant debt maturities until 2023. As of Dec 31, 2021, Cognizant had a total debt of $664 million, down from $674 million as of Sep 30, 2021.
It generated $825 million in cash from operations compared with $948 million reported in the previous quarter.
Free cash flow was $760 million compared with $897 million reported in the previous quarter.
In fourth-quarter 2021, Cognizant returned $66 million through share repurchases and $127 million in dividends to shareholders.
As of Dec 31, 2021, Cognizant had $2.1 billion remaining under the current share repurchase program.
Guidance
First-quarter 2022 revenues are expected between $4.80 billion and $4.84 billion, indicating growth of 10.2-11.2% on a cc basis.
2022 revenues are now expected to be $20.0-$20.5 billion, indicating an improvement of 8.5%-11.5% on a cc basis.
The company expects the adjusted operating margin to expand 20 basis points to 30 basis points to 15.6% to 15.7%.
Adjusted earnings for 2022 are expected to be $4.46-$4.60 per share (raised from $4.02-4.06 per share).
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, Cognizant has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cognizant has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is Cognizant (CTSH) Up 2.2% Since Last Earnings Report?
It has been about a month since the last earnings report for Cognizant (CTSH - Free Report) . Shares have added about 2.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cognizant due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Cognizant's Q4 Earnings Beat Estimates, Revenues Increase Y/Y
Cognizant reported fourth-quarter 2021 non-GAAP earnings of $1.10 per share, which beat the Zacks Consensus Estimate by 5.77% and improved 64.2% year over year.
Revenues of $4.777 million missed the consensus mark by 0.13%. However, the top line increased 14.2% year over year. At constant currency (cc), revenues grew 11%. The reported figure stayed between management’s revenue guidance of $4.75-$4.79 billion.
Digital revenues accounted for 44% of revenues and increased 19% year over year.
Top-Line Details
Financial services revenues (32.4% of revenues) increased 18.8% year over year at cc to $1.547 million. An increase in digital revenues and strong contribution from acquisitions drove growth.
Healthcare revenues (28.7% of revenues) increased 8.2% year over year at cc to $1.370 million, driven by growth in life sciences businesses and increased demand for its services among pharmaceutical companies. Strong demand for the company’s integrated software solutions from healthcare clients contributed to the top-line growth.
Products and Resources revenues (23.4% of revenues) increased 18% year over year at cc to $1,116 million owing to strong demand from retail, consumer goods, travel and hospitality clients, and a solid contribution from acquisitions.
Communications, Media and Technology revenues (15.6% of revenues) were $744 million, up 13.1% from the year-ago quarter at cc. Acquisitions and increased demand from technology clients drove growth.
Region-wise, revenues from North America increased 9% year over year at cc and accounted for 73.2% of total revenues.
Revenues from Europe increased 35.5% from the year-ago quarter at cc and made up 19.6% of total revenues. Revenues from the U.K. and Continental Europe increased 28.4% and 42.2% year over year, at cc, respectively.
Rest of the World revenues surged 25.7% at cc and represented 7.2% of total revenues.
Operating Details
Selling, general & administrative (SG&A) expenses, as a percentage of revenues, decreased 270 bps year over year to 18.2%.
Net headcount increased 31% year over year. Quarterly annualized attrition was 35%, down from 37% reported in the previous quarter.
Cognizant reported a non-GAAP operating margin of 15.3%, which increased 300 bps year over year.
Balance Sheet
Cognizant had cash and cash equivalents of $1.79 billion as of Dec 31, 2021, compared with $2.41 billion as of Sep 30, 2021.
The company has no significant debt maturities until 2023. As of Dec 31, 2021, Cognizant had a total debt of $664 million, down from $674 million as of Sep 30, 2021.
It generated $825 million in cash from operations compared with $948 million reported in the previous quarter.
Free cash flow was $760 million compared with $897 million reported in the previous quarter.
In fourth-quarter 2021, Cognizant returned $66 million through share repurchases and $127 million in dividends to shareholders.
As of Dec 31, 2021, Cognizant had $2.1 billion remaining under the current share repurchase program.
Guidance
First-quarter 2022 revenues are expected between $4.80 billion and $4.84 billion, indicating growth of 10.2-11.2% on a cc basis.
2022 revenues are now expected to be $20.0-$20.5 billion, indicating an improvement of 8.5%-11.5% on a cc basis.
The company expects the adjusted operating margin to expand 20 basis points to 30 basis points to 15.6% to
15.7%.
Adjusted earnings for 2022 are expected to be $4.46-$4.60 per share (raised from $4.02-4.06 per share).
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, Cognizant has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cognizant has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.