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Cognizant Beats by a Penny

CTSH

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Leading information technology services provider Cognizant Technology Solutions Corporation (CTSH - Analyst Report) posted a net income of $251.9 million or 82 cents per diluted share in the second quarter of 2012, up from $243.6 million or 79 cents per diluted share in the first quarter of 2012 and $208.0 million or 67 cents per diluted share in the year-ago quarter.
 
Reported result beat the Zacks Consensus Estimate by a penny.
 
Cognizant reported revenues of $1.795 billion in the second quarter of 2012, up 20.9% year over year and 4.9% sequentially.
 
Segment wise, the financial services segment -- including insurance, banking, and transaction processing -- grew 6.1% sequentially and 20.3% year over year. This segment represented 41.0% of the total revenue in the quarter.
 
Healthcare posted sequential growth of 3.6% and year-over-year growth of 25.3%, accounting for 27.0% of the total revenue in the quarter.
 
Retail manufacturing logistics were also strong, up 7.1% sequentially and 21.8% year over year, and represented 20.0% of revenues during the quarter.
 
The remaining 12.0% of revenues came primarily from other service-oriented industries like communications, media and high tech, which grew 0.5% sequentially and 12.4% year over year.
 
Operating margin came in at 18.5% versus 20.4% in the previous quarter, Cognizant repurchased shares worth $358 million during the quarter. Cognizant ended the quarter with cash and investments of $1.0 billion, down from $1.3 billion at the end of the previous quarter. 
 
Going forward, management expects revenues of at least $1.875 billion in the third quarter of 2012. EPS is likely to be 86 cents in third quarter 2012. Excluding stock-based compensation expense, EPS is forecasted at 92 cents in the third quarter of 2012.
 
Cognizant reiterated its outlook for 2012. For the full year 2012, management expects revenues to rise at least 20% annually to $7.34 billion.  EPS is likely to be $3.38, up from the previous estimate of $3.36. Excluding stock-based compensation expense, EPS is forecasted at $3.64, up from the earlier forecast of $3.62.
 
Cognizant remains well diversified among key verticals such as financial services, health care & life sciences, retail, manufacturing and logistics, which will help it to maintain its top line.
 
We continue to maintain a Neutral recommendation on Cognizant. Our recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of Hold. 

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