Recently, Cognizant Technology (CTSH - Analyst Report) extended its relationship with ING U.S., whereby the former can offer a broad array of insurance business process services to the latter. The agreement valued at $330 million spans seven years.
The U.S. arm of Dutch-based ING Groep N.V. (ING - Snapshot Report), ING U.S. family of companies, offers a widespread array of financial services to retail and institutional clients in the U.S. These services include life insurance, retirement plans, mutual funds, managed accounts, alternative investments, institutional investment management, annuities, employee benefits and financial planning.
As per the expanded agreement, Cognizant will now employ more than 1,000 ING U.S. employees in Minot, North Dakota and Des Moines, Iowa with the intent of creating a U.S.-based center of excellence for insurance and finance business process services. The expanded agreement is expected to build on Cognizant's ongoing success in providing specific technology systems management for ING U.S.
Being an integral part of the Cognizant's global delivery network, the center will empower the company to provide a broad range of business process services spanning the insurance and financial services industries. The company already provides business process services to more than 40 clients in these industries.
Under the multiyear agreement, Cognizant will buy ING U.S.'s existing facility in Minot, North Dakota. The company will also sub-lease offices in the current ING U.S. facility in Des Moines, Iowa, thereby providing business and workplace continuity for ING U.S. customers and the employees transitioning to Cognizant.
Meanwhile, earnings estimates for 2012 have dropped marginally in the last few days as management trimmed its outlook for 2012. Cognizant did not experience a strong acceleration in growth as it normally does at the end of the first quarter.
Also, contradictory to management’s expectations, North America was weaker. In particular, the banking portion of the financial services segment and the pharmaceuticals portion of the healthcare segment were the laggards.
We continue to maintain a Neutral recommendation on Cognizant in the long run. However, the near-term weakness forces us to have a Zacks #4 Rank, which translates into a short-term rating of Sell.