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Will Cognizant (CTSH) Pull Off a Surprise in Q1 Earnings?

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Cognizant Technology Solutions Corp. (CTSH - Free Report) is set to report first-quarter 2017 results on May 5. Last quarter, it posted a negative earnings surprise of 1.30%. In the trailing four quarters, the company recorded an average positive earnings surprise of 5.87%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Cognizant is consistently developing its capabilities to benefit from the ongoing digital transition, especially when it comes to integration of the new digital framework with legacy technology platforms. Moreover, accretive acquisitions such as the TriZetto, the more recent buyouts of Mirabeau BV, and the technology and business process services unit of Frontica Business Solutions AS are likely to benefit the company.

Over the past few years, Cognizant outpaced its Tier-1 peers on account of more exposure to the fast-growing verticals like Financial Services and Healthcare. The company has gained deep industry expertise and knowledge of the domain through partnerships with top firms. This strategy has enabled it to deliver more value to clients and capitalize on new opportunities. 

A look at Cognizant’s past six months’ price performance shows that it outperformed the Zacks categorized Business Software Services/BPO industry. Shares are up 5.11% compared with 4.91% growth witnessed in the overall industry. 

However, the company is seeing some sluggishness of late in the healthcare and financial sector. Stiff competition from peers like Accenture (ACN - Free Report) , Infosys and Wipro Ltd. (WIP - Free Report) also remains a concern.

For the first quarter of 2017, the company expects revenues in a range of $3.51–$3.55 billion. Non-GAAP earnings per share are expected to be 83 cents.

Earnings Whispers

Our proven model does not conclusively show that Cognizant will beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: Earnings ESP for Cognizant is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 75 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Cognizant’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

Here is a stock that, as per our model, has the right combination of elements to post an earnings beat this quarter:

Moody’s Corp. (MCO - Free Report) has an Earnings ESP of +7.38% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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