Cognizant (CTSH) to Report Q2 Earnings: What's in Store?

Cognizant Technology Solutions CTSH is set to report second-quarter 2020 results on Jul 29.

Management expects revenues to bear the impact of the coronavirus outbreak on its business, with particular weakness in demand in the second quarter owing to the ransomware incident impact of around $50-70 million.

The Zacks Consensus Estimate for revenues is currently pegged at $3.82 billion, indicating a decline of 7.8% from the figure reported in the year-ago quarter.

The consensus mark for second-quarter earnings moved 1.4% south to 68 cents over the past 30 days. The estimate suggests a year-over-year increase of 27.2%.

Notably, the company beat the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 2.79%.

Let’s see how things have shaped up for this announcement.

Cognizant Technology Solutions Corporation Price and EPS Surprise

Cognizant Technology Solutions Corporation Price and EPS Surprise

Cognizant Technology Solutions Corporation price-eps-surprise | Cognizant Technology Solutions Corporation Quote

Factors to Consider

Cognizant’s second-quarter results are likely to reflect its domain expertise in areas like automation, digital engineering, cloud and IoT.

Steady demand for digital engineering, cloud infrastructure, IoT and analytics solutions is expected to have driven the company’s product and resource revenues in the to-be-reported quarter.

Additionally, the communications, media and technology segment is likely to have benefited from steady demand for digital engineering services. However, the segment’s top-line results might reflect the negative impact of declining content-services demand.

Moreover, steady demand for digital operations and cloud-based environments is likely to have aided Life Sciences in the to-be-reported quarter.

However, Cognizant's business was largely disrupted in early April due to delays in project fulfillment as delivery shifted to work from home in the first quarter.

Additionally, in the wake of the ransomware attack, some clients opted to suspend Cognizant’s access to their networks, which resulted in decline in billings for the period.

Moreover, reduced client demand, primarily in the travel and hospitality industries hit by the coronavirus-led lockdown, is expected to have thwarted top-line growth in the soon to-be reported quarter.

Further, expenses pertaining to the company’s acquisition of Collaborative Solutions and France-based operations of EI-Technologies are likely to be reflected in the second-quarter results.

Key Developments in Q2

In the second quarter, Cognizant announced a collaboration with Verily Life Sciences, the health and life sciences company of Alphabet GOOGL, to facilitate COVID-19 testing across the United States. Cognizant is providing a team of its life sciences experts to support Verily's Baseline COVID-19 Testing Program to increase individuals' access to test scheduling.

Meanwhile, Cognizant was named a Leader by Gartner in its 2020 Magic Quadrant for Public Cloud Infrastructure Professional and Managed Services Worldwide report, based on its completeness of vision and ability to execute.

Notably, in late April, the company announced a security incident involving its internal systems resulting from a Maze ransomware attack.

What Our Model Says

According to the Zacks model, the combination of a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Cognizant has an Earnings ESP of +3.11% but currently carries a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are a few companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases:

Etsy, Inc. ETSY has an Earnings ESP of +1.15% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Take-Two Interactive Software, Inc. TTWO has an Earnings ESP of +12.97% and a Zacks Rank #2.

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