Leading IT services provider,
Cognizant Technology Solutions Corp. (
, reported first-quarter 2014 earnings of 62 cents per share,
which beat the Zacks Consensus Estimate by 7 cents and jumped
21.6% from the year-ago quarter.
Revenues jumped 19.9% year over year to $2.42 billion, almost in
line with the Zacks Consensus Estimate. The strong year-over-year
growth was primarily driven by solid performance across all the
The Financial services segment (42.3% of revenues) that includes
insurance, banking and transaction processing grew 19.7% year
over year to $1.02 billion. Healthcare (25.4% of revenues)
reported year-over-year growth of 20.8% to reach $615.9 million
in the quarter.
Retail/manufacturing/logistics (21.1% of revenues) continued to
post strong growth in the quarter. Revenues jumped 20.2% year
over year to $511.9 million. Other revenues, which include sales
from service-oriented industries like communications, media and
high tech, were $270.8 million, up 18.0% from the year-ago
Region-wise, revenues from North America increased 16.1% year
over year and represented 75.8% of total revenue. Europe
contributed 19.4% to revenues, which surged 35.0% year over year
in the quarter. The remaining 4.8% of revenues came from the Rest
of the World as sales jumped 28.4% from the year-ago quarter to
Operating margin (excluding stock-based compensation) climbed 90
basis points (bps) from the year-ago quarter to 20.8%. The
better-than-expected result was primarily due to declining
selling, general & administrative (SG&A), and
depreciation & amortization (D&A) expenses as a
percentage of revenues.
SG&A as a percentage of revenues declined 40 bps from the
year-ago quarter to 20.0%. D&A expense as a percentage of
revenues fell 30 bps on a year-over-year basis.
Net income margin (excluding stock-based compensation and
acquisition charges) increased 30 bps from the year-ago quarter
Cognizant exited the first quarter with cash and cash equivalents
of $1.94 billion, significantly up from $2.21 billion at the end
of the previous quarter.
For the second quarter of 2014, revenues are expected to be in
the range of $2.50 to $2.53 billion. Earnings are expected to be
approximately 62 cents per share, much better than the Zacks
Consensus Estimate of 57 cents.
For full-year 2014, Cognizant expects revenues to increase at
least 16.5% year over year to $10.3 billion. The company
forecasts earnings of $2.54 per share for the full year, much
better than the Zacks Consensus Estimate of $2.34.
We believe that Cognizant's positive outlook will drive the stock
in the near term. Additionally, we believe Cognizant, which
competes with the likes of
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 near
Currently, Cognizant has a Zacks Rank #3 (Hold).
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