Leading IT services provider
Cognizant Technology Solutions Corp. (
reported third quarter 2013 earnings of $1.06 per share, which
beat the Zacks Consensus Estimate by a nickel and jumped 15.8%
from the year-ago quarter.
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Earnings include stock-based compensation (after-tax) expense of
7 cents per share but exclude an acquisition charge of a penny.
The year-over-year growth was primarily driven by a robust top
Revenues jumped 21.9% year over year to $2.31 billion, well above
the Zacks Consensus Estimate. The strong year-over-year growth
was primarily driven by solid performance across all the
The Financial services (41.4% of revenues) segment that includes
insurance, banking, and transaction processing grew 21.0% year
over year to $954.4 million. Healthcare (26.0% of revenues)
reported year-over-year growth of 24.2% to reach $599.9 million
in the quarter.
Retail/manufacturing/logistics (21.3% of revenues) continued to
post strong growth in the quarter. Revenues jumped 23.7% year
over year to $490.6 million. Other revenues, which include sales
from service-oriented industries like communications, media and
high tech, were $260.8 million, up 16.6% from the year-ago
Region wise, revenues from North America increased 18.5% year
over year and represented 77.3% of revenues. Europe contributed
18.0% of revenues, which surged 37.0% year over year in the
quarter. The remaining 4.7% of revenues came from the Rest of the
World as sales jumped 28.0% from the year-ago quarter to $108.0
Operating margin (including stock-based compensation) climbed 30
basis points from the year-ago quarter to 19.2%. The
better-than-expected result was primarily due to declining
selling, general & administrative (SG&A) expense and
depreciation & amortization (D&A) expense as a percentage
SG&A as a percentage of revenues declined 110 bps from the
year-ago quarter to 19.2%. D&A as a percentage of revenues
declined 30 bps from the year-ago quarter to 1.8%.
Net income margin (excluding stock-based compensation and
acquisition charges) decreased 70 bps from the year-ago quarter
to 13.9%. Earnings per share (excluding stock-based compensation
and acquisition charges) increased 15.4% to $1.05 per share in
the reported quarter.
Cognizant exited the third quarter with cash and cash equivalents
of $2.03 billion, significantly up from $1.68 billion at the end
of the previous quarter.
For full year 2013, Cognizant expects revenues to increase at
least 20.3% year over year to $8.84 billion (prior outlook was
$8.74 billion). The company forecasts earnings of $4.01 (prior
outlook was $4.32) per share for the full year.
Cognizant reported a better-than-expected third quarter and
raised its full year guidance. We believe that the positive
outlook will drive the stock in the near term.
Additionally, we believe that Cognizant, which competes with the
Wipro Ltd. (
, remains well diversified in key verticals and emerging markets
of social, mobile, analytics and cloud, which will continue to
boost its top line.
However, increasing headcount may hurt profitability in the
Currently, Cognizant has a Zacks Rank #2 (Buy).