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Cognizant Q3 Earnings Beat Estimates: Will Raised View Aid Shares?

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Key Takeaways

  • Cognizant's Q3 EPS rose 11.2% year over year, topping estimates by 7.75%.
  • Revenue climbed 7.4% to $5.42B, fueled by North America and all segment gains.
  • The company lifted 2025 guidance, citing robust AI adoption and margin expansion.

Cognizant Technology Solutions (CTSH - Free Report) reported non-GAAP earnings of $1.39 per share in the third quarter of 2025, which beat the Zacks Consensus Estimate by 7.75% and increased 11.2% year over year. 

Revenues of $5.42 billion beat the consensus mark by 1.63%. The top line increased 7.4% year over year and 6.5% at constant currency (cc). This growth was driven by strong performance in North America and organic growth across all segments. Acquisitions also contributed approximately 250 basis points to year-over-year revenue growth.

On a trailing 12-month basis, bookings increased 5% year over year to $27.5 billion, which represented a book-to-bill of approximately 1.3 times. Bookings in the third quarter declined 5% year over year. Third-quarter bookings included six large deals, with a total contract value of more than $100 million.

Cognizant had over 3,500 early Generative AI client engagements in the third quarter of 2025. This represents a 40% jump sequentially.

CTSH’s shares have underperformed the Zacks Computer & Technology sector in the year-to-date period. The stock has lost 6.8%, while the broader sector has surged 29.6%. We believe the raised guidance will help CTSH stock recover.

CTSH’s Top-Line Details

Financial services revenues (29.1% of revenues) increased 6.2% year over year (up 5.4% at cc) to $1.578 billion. Growth is primarily driven by improved discretionary spending and investments in cloud, data modernization and AI.

Health Sciences revenues (29.6% of revenues) increased 5.9% year over year (up 5.1% at cc) to $1.604 billion. Growth is driven by strong demand across payer, provider and life sciences, which offsets some discretionary spending pressures.

Products and Resources revenues (25.5% of revenues) increased 12.6% year over year (up 11.4% at cc) to $1.383 billion.

Communications, Media and Technology revenues (15.7% of revenues) were $850 million, which increased 4.2% from the year-ago quarter (up 3.6% at cc). 

Region-wise, revenues from North America increased 7.8% year over year and at cc and contributed 74.4% of total revenues.

Revenues from Europe increased 7.8% year over year (up 2.7% at cc) and contributed 19.2% to total revenues. Revenues from the U.K. increased 4.4% year over year (up 0.7% at cc). Continental Europe revenues increased 11.1% year over year (up 4.6% at cc).

The Rest of the World revenues increased 0.9% year over year (up 2.6% at cc) and contributed 6.4% to total revenues.

CTSH’s Operating Details

Selling, general & administrative expenses, as a percentage of revenues, contracted 110 bps year over year to 15.4%.

Total headcount at the end of the third quarter was 349,800 compared with 343,800 in the prior quarter. 

Voluntary attrition - Tech Services on a trailing 12-month basis was 14.5% in the third quarter of 2025, compared with 15.2% and 14.6% for the periods ended June 30, 2025, and Sept. 30, 2024, respectively

Cognizant reported a GAAP operating margin of 16%, expanding 140 bps on a year-over-year basis.

Non-GAAP operating margin (adjusted for NextGen charges) of 16% expanded 70 bps year over year.

CTSH’s Balance Sheet

CTSH had cash and short-term investments of $2.35 billion as of Sept. 30, compared with $1.80 billion as of June 30, 2025. 

As of Sept. 30, 2025, the company had a total debt of $584 million, down from $592 billion reported as of June 30.

The company generated $1.227 billion in cash from operations compared with $398 million in the previous quarter.

Free cash flow was $1.16 billion compared with $331 million reported in the prior quarter.

CTSH Initiates Strong Q4 & 2025 Guidance  

Cognizant expects fourth-quarter 2025 revenues between $5.27 billion and $5.33 billion, indicating growth of 3.8%-4.8% and an increase of 2.5%-3.5% on a cc basis. 

For 2025, revenues are expected to be in the range of $21.05-$21.10 billion, an increase of 6.6-6.9% on a reported basis and growth of 6%-6.3% on a cc basis. 

Adjusted operating margin for 2025 is expected to be approximately 15.7% (an increase of 40 basis points).

Adjusted earnings per share for 2025 are expected to be between $5.22 and $5.26.

CTSH’s Zacks Rank & Other Stocks to Consider

CTSH currently carries a Zacks Rank #2 (Buy).

BILL Holdings (BILL - Free Report) and Advanced Energy (AEIS - Free Report) , and Akamai Technologies (AKAM - Free Report) are some other top-ranked stocks that investors can consider in the broader sector. Each stock carries a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bill Holdings’ shares have plunged 42% in the year-to-date period. BILL is set to report its first-quarter fiscal 2026 results on Nov. 6.

Advanced Energy is set to report third-quarter 2025 results on Nov. 4. Advanced Energy shares have surged 79.9% year to date.

Akamai Technologies is set to report third-quarter 2025 results on Nov. 6. Akamai Technologies shares have plunged 23.7% year to date.

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