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Will Cognizant (CTSH) Q2 Earnings Gain From Domain Expertise?

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Cognizant Technology Solutions Corp (CTSH - Free Report) is set to report second-quarter 2018 results on Aug 2. The company’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, delivering an average positive surprise of 3.41%.

In the last reported quarter, Cognizant delivered a positive earnings surprise of 0.95%. Revenues of $3.91 billion surpassed the Zacks Consensus Estimate and increased 10.3% year over year, driven by growth in all the four domains.

For second-quarter 2018, Cognizant expects revenues in the range of $4-$4.04 billion. Non-GAAP earnings are expected to be at least $1.09 per share.

The Zacks Consensus Estimate for second-quarter earnings has remained steady at $1.10 over the last seven days, reflecting a year-over-year growth of 18.3%. The consensus mark for revenues currently stands at $4.02 billion, reflecting year-over-year growth of 9.6%.

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

Domain Expertise: Key Catalyst

Cognizant is consistently developing its capabilities to gain from the ongoing digital transition, especially from the integration of the new digital framework with legacy technology platforms. Notably, digital now contributes almost 29% of revenues.

Moreover, Cognizant is expected to benefit from its significant exposure to fast-growing verticals like financial services, health care, retail and manufacturing, which contribute almost 80% of revenues.

The financial Services segment is driven by growth in insurance companies and mid-tier banks, which offset the softness from large banks. Moreover, higher demand from payer and top-tier consulting clients in the healthcare segment is likely to help the company sustain the momentum.

Cognizant is also likely to gain from increasing spending on high growth digital technologies such as digital engineering, cybersecurity, cloud migration, replatforming to the cloud, robotic and intelligent process automation, and Artificial Intelligence (AI).

The company’s strategic customer base (clients with the potential to generate $5-$50 million or more in annual revenues) continues to expand. Cognizant now has more than 364 strategic clients.

Acquisitions & Partnerships: Other Drivers

Acquisitions have been a key growth driver for Cognizant. Buyouts like that of Boulder Heath, TMG Health, Japan-based Brilliant Service, Adobe partner Netcentric and Zone have widened the company’s domain and overall digital delivery capabilities.

Additionally, the company gained deep industry expertise and knowledge of the domains through partnerships with top firms like Microsoft and SAP SE.

Partnerships with leading IT-firms have enabled the company deliver more value to clients and capitalize on new opportunities. It has also provided a competitive edge against the likes of Accenture, Infosys and Wipro.

Moreover, Cognizant’s expanding presence in international markets, which are fast growing than those in the United States, is expected to drive top-line growth in the to-be reported quarter.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Cognizant has a Zacks Rank #3 but its Earnings ESP is -0.15%. Consequently, our proven model does not conclusively show that the company is likely to deliver a positive surprise this quarter.

Stocks That Warrant a Look

Here are three stocks that you may want to consider as our model shows that these have the right combination of elements to deliver an earnings beat in the to-be- reported quarter.

Turtle Beach (HEAR - Free Report) has an Earnings ESP of +57.14% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vishay Intertechnology (VSH - Free Report) has an Earnings ESP of +2.41% and a Zacks Rank #1.

NetApp (NTAP - Free Report) has an Earnings ESP of +1.12% and a Zacks Rank #2.

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