Back to top

Image: Bigstock

Will Cognizant's (CTSH) Q2 Earnings Offset Sales Woes?

Read MoreHide Full Article

Cognizant Technology Solutions Corp. (CTSH - Free Report) is set to report second-quarter 2016 results on Aug 5. Last quarter, it posted a positive earnings surprise of 8.57%. In the trailing four quarters, the company has recorded an average positive earnings surprise of 4.74%.

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

Factors to Consider

In the last quarter, though the company delivered an earnings beat, sales fell short of expectations. Additionally, the company trimmed its revenue guidance for 2016, ringing warnings bells for investors.

The company has been seeing some sluggishness of late in the healthcare and financial sector, which are its biggest markets. The top line can remain muted in the to-be-reported quarter as well if these macroeconomic headwinds continue. Moreover, in such a turbulent market, the company has to constantly fend off competition from peers like Accenture (ACN - Free Report) , Infosys (INFY - Free Report) and Wipro Ltd., which is a headwind.

Nonetheless, Cognizant has placed itself well to benefit from the ongoing digitization of the businesses. The company already has its own platform named Digital Works, designed to aid such business transformations. Cognizant bought a 49% stake in ReD Associates, a prominent consulting firm last April. This acquisition further strengthens Digital Works’ capabilities.

Moreover, apart from being a prominent technological services provider, Cognizant has been increasing its focus on high profit areas like professional consulting and business-process outsourcing, which is a positive.

For the second quarter of 2016, the company expects revenues in a range of $3.34 billion to $3.40 billion. Non-GAAP earnings per share are expected to be in a band of 80 cents to 82 cents.

COGNIZANT TECH Price and EPS Surprise

COGNIZANT TECH Price and EPS Surprise | COGNIZANT TECH Quote

Earnings Whispers?

Our proven model does not conclusively show that Cognizant is likely to beat earnings 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. That is not the case here, as you will see below.

Zacks ESP: Cognizant has a 0.00% ESP because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 73 cents.

Zacks Rank: Cognizant currently has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

Here is a stock which you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter:

LATAM Airlines Group S.A. has an Earnings ESP of +166.67% and a Zacks Rank #3.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Cognizant Technology Solutions Corporation (CTSH) - free report >>

Infosys Limited (INFY) - free report >>

Accenture PLC (ACN) - free report >>

Published in