Cognizant Technology Solutions CTSH reported non-GAAP earnings of $1.25 per share in third-quarter 2024, which beat the Zacks Consensus Estimate by 9.65% and increased 7.8% year over year.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Revenues of $5 billion beat the consensus mark by 0.82%. The top line increased 3% year over year and 2.7% at constant currency (cc). Acquisitions contributed 150 basis points (bps) to top-line growth.
On a trailing 12-month basis, bookings declined 2% year over year to $26.2 billion, which represented a book-to-bill of approximately 1.3 times. Six deals, each more than $100 million in TCV, were signed. This included four deals in Health Sciences, one in financial services and one in CMT.
Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise
Cognizant Technology Solutions Corporation price-consensus-eps-surprise-chart | Cognizant Technology Solutions Corporation Quote
Cognizant is heavily investing in AI, with a commitment of $1 billion to enhance platforms and capabilities.
CTSH’s shares have underperformed the Zacks Computer & Technology sector year to date. The stock has moved up 1.5%, while the broader sector has appreciated 27.6%. We believe the raised guidance will help CTSH stock to recover.
CTSH’s Top-Line Details
Financial services revenues (29.5% of revenues) increased 0.7% year over year (up 0.5% at cc) to $1.486 billion. The growth is primarily due to improved discretionary spending and strong execution.
Health Sciences revenues (30% of revenues) increased 7.8% year over year (up 7.6% at cc) to $1.514 billion. The growth is driven by strong offerings and recent large deal wins.
Products and Resources revenues (24.3% of revenues) increased 5% year over year (up 4.6% at cc) to $1.22 billion.
Communications, Media and Technology revenues (16.2% of revenues) were $816 million, which decreased 3.7% from the year-ago quarter (up 4.1% at cc).
Region-wise, revenues from North America increased 3.8% year over year and at cc and contributed 74% to total revenues.
Revenues from Europe fell 0.3% year over year (down 1.9% at cc) and contributed 19.2% to total revenues. Revenues from the U.K. declined 0.8% (down 2.9% at cc). Continental Europe revenues increased 0.2% (down 0.8% at cc).
The Rest of the World revenues increased 4.3% year over year (up 4.2% at cc) and contributed 6.8% to total revenues.
CTSH’s Operating Details
Selling, general & administrative expenses, as a percentage of revenues, expanded 20 bps year over year to 16.5%.
Total headcount at the end of the third quarter was 340,100 compared with 336,300 in the previous quarter.
Voluntary attrition - Tech Services on a trailing-12-month basis increased to 14.6%, down from 16.2% for the period ended Sept. 30, 2023.
Cognizant reported a GAAP operating margin of 14.6%, expanding 60 bps on a year-over-year basis.
The company incurred $33 million in costs related to the NextGen program, negatively impacting the GAAP operating margin by 70 bps.
Non-GAAP operating margin (adjusted for NextGen charges) of 15.3% contracted 20 bps year over year.
CTSH’s Balance Sheet
CTSH had cash and short-term investments of $2.02 billion as of Sept. 30, 2024, compared with $2.2 billion as of June 30, 2024.
As of Sept. 30, 2024, the company had a total debt of $1.2 billion, up from $623 million reported as of June 30, 2024.
It generated $847 million in cash from operations compared with $262 million in the previous quarter.
Free cash flow was $791 million compared with free cash flow of $183 million reported in the prior quarter.
CTSH Initiates Strong 2024 Guidance
Cognizant expects fourth-quarter 2024 revenues between $5 billion and $5.1 billion, indicating growth of 5.1-7.1% (an increase of 4.8% to 6.8% on a cc basis).
For 2024, revenues are expected to be in the range of $19.7-$19.8 billion, indicating an increase of 1.6-2.1% on a reported basis (an increase of 1.4% to 1.9% on a cc basis). Acquisitions are expected to contribute 200 bps.
Adjusted operating margin for 2024 is expected to be approximately 15.1%, unchanged year over year.
Adjusted earnings per share for 2024 are expected between $4.63 and $4.67.
Zacks Rank & Stocks to Consider
CTSH currently carries a Zacks Rank #3 (Hold).
Shopify SHOP, Arista Networks ANET and Blackline BL are some better-ranked stocks that investors can consider in the broader sector. Each stock presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shopify shares have risen 2.7% year to date. SHOP is set to report its third-quarter 2024 results on Nov. 12.
Arista Networks shares have rallied 68.2% year to date. ANET is set to report its third-quarter 2024 results on Nov. 7.
Blackline shares have lost 10.1% year to date. BL is set to report its third-quarter 2024 results on Nov. 7.
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