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Cognizant (CTSH) to Report Q4 Earnings: What's in Store?

Cognizant Technology Solutions Corp . CTSH is set to report fourth quarter and full year 2015 results on Feb 8. Last quarter, it posted a negative earnings surprise of 4.29%. However, in the trailing four quarters, the company has recorded an average positive earnings surprise of 3.58%.

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

Factors to Consider

Cognizant has been benefiting from its healthy exposure to fast-growing verticals like Financial Services and Healthcare. The company has accumulated deep industry expertise and knowledge of these domains through partnerships with top firms. These partnerships have enabled it to deliver more value to clients and capitalize on new opportunities.

The company is expected to continue to benefit from strong demand for high quality, lower cost technology services. Based on its global delivery model and expanding capacity in low-cost areas in India, China, Philippines and Latin America, the company remains well-positioned in the outsourcing market. We believe that growing demand for offshore services beyond traditional IT outsourcing namely, BPO (Business Process Outsourcing), KPO (Knowledge Process Outsourcing) and IT infrastructure services, bode well for the company.

However, the company can be severely impacted by slowdown in regions like North America or unfavorable changes in industries like financial services. Also, given the breakneck pace of evolution in the technology space, the company has to constantly fend off competition from peers like Accenture ACN , Infosys INFY and Wipro Ltd.

Last month, Cognizant reaffirmed its revenue and earnings guidance for 2015. Investors were pleased as it was expected that the company's financials would be impacted due to heavy floods in its India-based Chennai center. Chennai is one of the most important Cognizant facilities with as many as 11 delivery and operations centers and over 27% of the company's total workforce.

Cognizant declared that it continues to expect revenues in 2015 to be approximately $12.41 billion (representing 21% growth over 2014) and non-GAAP earnings of around $3.03 per share. The company has been increasing its guidance for the trailing three quarters.

Earnings Whispers?

Our proven model does not conclusively show that Cognizant is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: Earnings ESP for Cognizant is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 71 cents.

Zacks Rank: Cognizant has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

Here is a stock which you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter:

MaxLinear, Inc. MXL has an Earnings ESP of +2.94% and a Zacks Rank #1 (Strong Buy).

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COGNIZANT TECH (CTSH): Free Stock Analysis Report

INFOSYS LTD (INFY): Free Stock Analysis Report

MAXLINEAR INC-A (MXL): Free Stock Analysis Report

ACCENTURE PLC (ACN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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