Published: Tue, August 09, 2016
Economy | By Melissa Porter

Cognizant guidance fails to spook IT stocks; here's why

Second-quarter revenue rose 9.2 percent to $3.37 billion, from $3.085 income slid 40 percent to $252.4 million, or 41 cents a share, from, $420.1 million, or 68 cents, from the same period a year ago. Revenues of $3.370 billion were nearly in line with the consensus mark of $3.371 billion. The firm's revenue for the quarter was up 9.2% compared to the same quarter a year ago.

"Our second quarter performance, as anticipated, represented broad-based revenue growth across service lines, geographies and industries, including healthcare and financial services", said Francisco D'Souza, chief executive officer.

"Certainly we see a more a cautious approach in our financial services segment since the United Kingdom vote. more importantly due to the impact it has on the outlook for near term interest rates", President Gordon Coburn told Reuters.

The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, growth in earnings per share and increase in net income. In the second quarter of 2016, the average realized price per barrel of oil was $35.06 versus a realized price per barrel of $50.47 in the year ago quarter, and the average realized price per Mcf for natural gas was $2.04 compared to $2.72 in the second quarter of 2015. The Long Term Debt/Equity is valued 0.09 with the Total Debt/Equity of 0.11. Analysts were looking for revenues of $3.37 billion. Since inception of the program, the Company has repurchased $1.9 billion of its shares under this program. BMO Capital Markets reaffirmed a "buy" rating on shares of Cognizant Technology Solutions a report on Sunday, May 8th. This move allows the company to have additional financial flexibility for driving growth.

Cognizant Technology Solutions Corp (NASDAQ:CTSH) remained bullish with an increase +1.60% putting the price on the $59.71 per share in last trading session ended on 8/5/2016. The average estimate of 13 analysts surveyed by Zacks Investment Research was for earnings of 82 cents per share. Absolute adjusted operating profits were $683MM (~$11MM above expectations) that, when combined with a lower-than-expected tax rate and share count, resulted in the $0.05 EPS beat, in our estimation.

"The company management highlighted that the banking sector in Europe was facing a slowdown due to macroeconomic blues, leading to lower discretionary spends".

Cognizant has placed itself well to benefit from the ongoing digitization of businesses. The company has a 20-day simple moving average of 1.54% and a volume of 1.54%. Cognizant bought a 49% stake in ReD Associates, a prominent consulting firm last April.

Cognizant, which has $4.5 billion in cash reserves, expects to continue to make investments in building up its digital services unit, Cognizant Digital Works.

Peers such as Tata Consultancy Services and Wipro do not provide annual revenue guidance though HCL Technologies surprised the market with a revenue guidance of 12-14% for FY17. The company has market value of $58.01B.

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