Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

Leading IT services provider Cognizant Technology Solutions Corp. (CTSH - Analyst Report) reported earnings of 95 cents per share that beat the Zacks Consensus Estimate by 3 cents.

Earnings per share jumped 20.3% year over year and 3.3% sequentially in the reported quarter. The strong growth was primarily driven by an improving top line.

Revenues

Revenues jumped 18.1% year over year and 3.7% sequentially to $2.02 billion, in line with the Zacks Consensus Estimate.  The strong year-over-year growth was primarily driven by solid performance across all the segments.

First quarter revenues included $8.2 million from the acquisition of C1 Group.

Financial services (42.3% of revenues) that include insurance, banking, and transaction processing grew 4.9% sequentially and 23.1% year over year to $855.3 million.

Healthcare (25.2% of revenues) reported sequential growth of 2.0% and year-over-year growth of 9.1% to reach $510.0 million in the quarter.

Retail/manufacturing/logistics (21.1% of total revenue) continued to post strong growth in the quarter. Revenues jumped 27.2% year over year and 4.2% quarter over quarter to $425.8 million.

Other revenues, which include sales from service-oriented industries like communications, media and high tech, were $229.5 million, up 7.0% from the year-ago quarter and 2.5% from the prior quarter.

Region wise, revenues from North America increased 16.3% year over year and 3.0% sequentially to $1.58 billion, representing 78.3% of total revenue.

Europe contributed 17.2% of total revenue, which surged 22.7% year over year and 6.7% quarter over quarter to $348.3 million.

The remaining 4.5% of total revenue came from the Rest of the World as sales jumped 35.4% from the year-ago quarter and 4.8% from the previous quarter to $90.3 million.

Margins

Selling, general & administrative expense as a percentage of revenues declined 20 basis points (“bps”) from the year-ago quarter and 150 bps from the previous quarter to 20.4%.

Depreciation & amortization (D&A) as a percentage of revenues climbed 10 bps from the year-ago quarter but remained flat on a sequential basis.

Operating margin (including stock-based compensation) climbed 10 bps from the year-ago quarter but contracted 50 bps sequentially to 18.4%.

Balance Sheet & Cash Flow

Cognizant ended the quarter with cash and cash equivalents of $1.47 billion, down from $1.57 billion at the end of the previous quarter.

Cognizant’s board of directors expanded its current share repurchase program by $500.0 million to $1.5 billion and extended the term of the program to Dec 31, 2014.

Guidance

For the second quarter of 2013, Cognizant forecasts revenues of at least $2.13 billion and expects earnings of $1.06 on a non-GAAP basis.

For full year 2013, Cognizant expects revenues to increase at least 17% year over year to $8.60 billion. The company forecasts earnings of $4.31 per share for the full year.

Our Recommendation

Although Cognizant reported a better-than-expected first quarter, operating margin contraction on a sequential basis will remain a concern in the near term. Moreover, Cognizant’s full year guidance reflects sluggish revenue growth amid a volatile macro-economic environment, which may hurt profitability in the near term.

Additionally, the uncertainty surrounding the new immigration reform bill is expected to remain a major overhang on Cognizant going forward.

Nevertheless, we believe that Cognizant, which competes with the likes of Accenture (ACN - Analyst Report), Infosys Technologies (INFY - Analyst Report) and Wipro Ltd. (WIT - Snapshot Report), remains well diversified in key verticals and emerging markets of social, mobile, analytics and cloud, which will continue to boost its top line.

Currently, Cognizant has a Zacks Rank #3 (Hold).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%