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Leading information technology services provider Cognizant Technology Solutions Corporation (CTSH - Analyst Report) posted a net income of $276.9 million or 91 cents per share in the third quarter of 2012, which compared favorably with a net income of $251.9 million or 82 cents per diluted share in the second quarter of 2012 and a net income of $227.1 million or 73 cents per diluted share in the year-ago quarter.

Earnings per share of 91 cents in the quarter surpassed the Zacks Consensus Estimate of 87 cents and also management’s expectation of 86 cents.
 
Revenues 
 
Cognizant reported revenues of $1.892 billion in the third quarter of 2012, up 18.2% year over year and 5.4% sequentially.
 
In particular, growth from newer service offerings of Consulting, Business Process Outsourcing and IT Infrastructure Services were strong and contributed 20% to the top line. 
 
Segment wise, the financial services segment -- including insurance, banking, and transaction processing -- grew 7.0% sequentially and 20.2% year over year. This segment represented 41.7% of the total revenue in the quarter.
 
Healthcare posted sequential decline of 0.2% but a 12.4% year-over-year growth, accounting for 25.5% of the total revenue in the quarter.
 
Retail manufacturing logistics were once again strong, with a 10.9% sequential and 27.9% year-over-year growth, and contributed 21.0% of total revenue during the quarter.
 
The remaining 11.8% of revenues came from other service-oriented industries like communications, media and high tech, which grew 3.8% sequentially and 8.9% year over year.
 
Margins 
 
Operating margin came in at 18.8% versus 18.5% in the previous quarter and 18.3% in the year-ago quarter. Cognizant ended the quarter with cash and investments of $1.3 billion, up from $1.0 billion at the end of the previous quarter. 
 
Guidance  
 
Going forward, management expects revenues of at least $1.94 billion in the fourth quarter of 2012. EPS is likely to be 91 cents in fourth quarter 2012. Excluding stock-based compensation expense, EPS is forecasted at 97 cents in the fourth quarter of 2012.
 
Cognizant reiterated its revenue guidance for 2012. For the full year 2012, management continues to expect revenues to rise at least 20% annually to $7.34 billion. Growth from newer services is expected to be strong. EPS is likely to be $3.42, up from the previous estimate of $3.38. Excluding stock-based compensation expense, EPS is forecasted at $3.69, up from the earlier forecast of $3.64.
 
Our Recommendation  
 
Cognizant, which competes with the likes of Infosys Technologies (INFY - Analyst Report) and Wipro Ltd. (WIT - Snapshot Report), remains well diversified among key verticals such as financial services, health care & life sciences, retail, manufacturing and logistics, which continue to boost 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 Hold rating. 

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