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Why Is Cognizant (CTSH) Up 8.3% Since Last Earnings Report?
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It has been about a month since the last earnings report for Cognizant (CTSH - Free Report) . Shares have added about 8.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cognizant due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Cognizant Q3 Earnings Beat Estimates, Revenues Up Y/Y
Cognizant Technology Solutions reported non-GAAP earnings of $1.25 per share in third-quarter 2024, which beat the Zacks Consensus Estimate by 9.65% and increased 7.8% year over year.
Revenues of $5 billion beat the consensus mark by 0.82%. The top line increased 3% year over year and 2.7% at constant currency (cc). Acquisitions contributed 150 basis points (bps) to top-line growth.
On a trailing 12-month basis, bookings declined 2% year over year to $26.2 billion, which represented a book-to-bill of approximately 1.3 times. Six deals, each more than $100 million in TCV, were signed. This included four deals in Health Sciences, one in financial services and one in CMT.
Cognizant is heavily investing in AI, with a commitment of $1 billion to enhance platforms and capabilities.
CTSH’s Top-Line Details
Financial services revenues (29.5% of revenues) increased 0.7% year over year (up 0.5% at cc) to $1.486 billion. The growth is primarily due to improved discretionary spending and strong execution.
Health Sciences revenues (30% of revenues) increased 7.8% year over year (up 7.6% at cc) to $1.514 billion. The growth is driven by strong offerings and recent large deal wins.
Products and Resources revenues (24.3% of revenues) increased 5% year over year (up 4.6% at cc) to $1.22 billion.
Communications, Media and Technology revenues (16.2% of revenues) were $816 million, which decreased 3.7% from the year-ago quarter (up 4.1% at cc).
Region-wise, revenues from North America increased 3.8% year over year and at cc and contributed 74% to total revenues.
Revenues from Europe fell 0.3% year over year (down 1.9% at cc) and contributed 19.2% to total revenues. Revenues from the U.K. declined 0.8% (down 2.9% at cc). Continental Europe revenues increased 0.2% (down 0.8% at cc).
The Rest of the World revenues increased 4.3% year over year (up 4.2% at cc) and contributed 6.8% to total revenues.
CTSH’s Operating Details
Selling, general & administrative expenses, as a percentage of revenues, expanded 20 bps year over year to 16.5%.
Total headcount at the end of the third quarter was 340,100 compared with 336,300 in the previous quarter.
Voluntary attrition - Tech Services on a trailing-12-month basis increased to 14.6%, down from 16.2% for the period ended Sept. 30, 2023.
Cognizant reported a GAAP operating margin of 14.6%, expanding 60 bps on a year-over-year basis.
The company incurred $33 million in costs related to the NextGen program, negatively impacting the GAAP operating margin by 70 bps.
Non-GAAP operating margin (adjusted for NextGen charges) of 15.3% contracted 20 bps year over year.
CTSH’s Balance Sheet
CTSH had cash and short-term investments of $2.02 billion as of Sept. 30, 2024, compared with $2.2 billion as of June 30, 2024.
As of Sept. 30, 2024, the company had a total debt of $1.2 billion, up from $623 million reported as of June 30, 2024.
It generated $847 million in cash from operations compared with $262 million in the previous quarter.
Free cash flow was $791 million compared with free cash flow of $183 million reported in the prior quarter.
CTSH Initiates Strong 2024 Guidance
Cognizant expects fourth-quarter 2024 revenues between $5 billion and $5.1 billion, indicating growth of 5.1-7.1% (an increase of 4.8% to 6.8% on a cc basis).
For 2024, revenues are expected to be in the range of $19.7-$19.8 billion, indicating an increase of 1.6-2.1% on a reported basis (an increase of 1.4% to 1.9% on a cc basis).
Acquisitions are expected to contribute 200 bps.
Adjusted operating margin for 2024 is expected to be approximately 15.1%, unchanged year over year.
Adjusted earnings per share for 2024 are expected between $4.63 and $4.67.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, Cognizant has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cognizant has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Cognizant is part of the Zacks Business - Software Services industry. Over the past month, Tyler Technologies (TYL - Free Report) , a stock from the same industry, has gained 4.1%. The company reported its results for the quarter ended September 2024 more than a month ago.
Tyler Technologies reported revenues of $543.34 million in the last reported quarter, representing a year-over-year change of +9.8%. EPS of $2.52 for the same period compares with $2.14 a year ago.
For the current quarter, Tyler Technologies is expected to post earnings of $2.42 per share, indicating a change of +28% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.7% over the last 30 days.
Tyler Technologies has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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Why Is Cognizant (CTSH) Up 8.3% Since Last Earnings Report?
It has been about a month since the last earnings report for Cognizant (CTSH - Free Report) . Shares have added about 8.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cognizant due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Cognizant Q3 Earnings Beat Estimates, Revenues Up Y/Y
Cognizant Technology Solutions reported non-GAAP earnings of $1.25 per share in third-quarter 2024, which beat the Zacks Consensus Estimate by 9.65% and increased 7.8% year over year.
Revenues of $5 billion beat the consensus mark by 0.82%. The top line increased 3% year over year and 2.7% at constant currency (cc). Acquisitions contributed 150 basis points (bps) to top-line growth.
On a trailing 12-month basis, bookings declined 2% year over year to $26.2 billion, which represented a book-to-bill of approximately 1.3 times. Six deals, each more than $100 million in TCV, were signed. This included four deals in Health Sciences, one in financial services and one in CMT.
Cognizant is heavily investing in AI, with a commitment of $1 billion to enhance platforms and capabilities.
CTSH’s Top-Line Details
Financial services revenues (29.5% of revenues) increased 0.7% year over year (up 0.5% at cc) to $1.486 billion. The growth is primarily due to improved discretionary spending and strong execution.
Health Sciences revenues (30% of revenues) increased 7.8% year over year (up 7.6% at cc) to $1.514 billion. The growth is driven by strong offerings and recent large deal wins.
Products and Resources revenues (24.3% of revenues) increased 5% year over year (up 4.6% at cc) to $1.22 billion.
Communications, Media and Technology revenues (16.2% of revenues) were $816 million, which decreased 3.7% from the year-ago quarter (up 4.1% at cc).
Region-wise, revenues from North America increased 3.8% year over year and at cc and contributed 74% to total revenues.
Revenues from Europe fell 0.3% year over year (down 1.9% at cc) and contributed 19.2% to total revenues. Revenues from the U.K. declined 0.8% (down 2.9% at cc). Continental Europe revenues increased 0.2% (down 0.8% at cc).
The Rest of the World revenues increased 4.3% year over year (up 4.2% at cc) and contributed 6.8% to total revenues.
CTSH’s Operating Details
Selling, general & administrative expenses, as a percentage of revenues, expanded 20 bps year over year to 16.5%.
Total headcount at the end of the third quarter was 340,100 compared with 336,300 in the previous quarter.
Voluntary attrition - Tech Services on a trailing-12-month basis increased to 14.6%, down from 16.2% for the period ended Sept. 30, 2023.
Cognizant reported a GAAP operating margin of 14.6%, expanding 60 bps on a year-over-year basis.
The company incurred $33 million in costs related to the NextGen program, negatively impacting the GAAP operating margin by 70 bps.
Non-GAAP operating margin (adjusted for NextGen charges) of 15.3% contracted 20 bps year over year.
CTSH’s Balance Sheet
CTSH had cash and short-term investments of $2.02 billion as of Sept. 30, 2024, compared with $2.2 billion as of June 30, 2024.
As of Sept. 30, 2024, the company had a total debt of $1.2 billion, up from $623 million reported as of June 30, 2024.
It generated $847 million in cash from operations compared with $262 million in the previous quarter.
Free cash flow was $791 million compared with free cash flow of $183 million reported in the prior quarter.
CTSH Initiates Strong 2024 Guidance
Cognizant expects fourth-quarter 2024 revenues between $5 billion and $5.1 billion, indicating growth of 5.1-7.1% (an increase of 4.8% to 6.8% on a cc basis).
For 2024, revenues are expected to be in the range of $19.7-$19.8 billion, indicating an increase of 1.6-2.1% on a reported basis (an increase of 1.4% to 1.9% on a cc basis).
Acquisitions are expected to contribute 200 bps.
Adjusted operating margin for 2024 is expected to be approximately 15.1%, unchanged year over year.
Adjusted earnings per share for 2024 are expected between $4.63 and $4.67.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
Currently, Cognizant has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cognizant has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Cognizant is part of the Zacks Business - Software Services industry. Over the past month, Tyler Technologies (TYL - Free Report) , a stock from the same industry, has gained 4.1%. The company reported its results for the quarter ended September 2024 more than a month ago.
Tyler Technologies reported revenues of $543.34 million in the last reported quarter, representing a year-over-year change of +9.8%. EPS of $2.52 for the same period compares with $2.14 a year ago.
For the current quarter, Tyler Technologies is expected to post earnings of $2.42 per share, indicating a change of +28% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.7% over the last 30 days.
Tyler Technologies has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.