Markets

Cognizant's Q4 Earnings Beat Estimates, Revenues Miss

Cognizant Technology Solutions Corp .'s CTSH fourth-quarter 2015 adjusted earnings of 74 cents per share came above the Zacks Consensus Estimate of 71 cents but revenues of $3.23 billion fell short of the Consensus Estimate of $3.24 billion. Also, the company's outlook for 2016 fell short of analysts' expectations. Consequently, shares were trading down 7% in the pre-market session.

However, the company reported non-GAAP earnings of 80 cents a share, which grew 19.4% year over year while revenues surged 17.9%.

Segment wise, the Financial services segment (40.5% of revenues) that includes insurance, banking and transaction processing grew 16.6% year over year to $1.3 billion. Health care (29.4% of revenues) grew 23.2% year over year and came in at $951.9 million.

Retail/manufacturing/logistics (18.9% of revenues) continued its growth momentum and jumped 14.3% year over year to $610.5 million. Other revenues (11.2% of revenues), which include sales from service-oriented industries like communications, media and high tech, were $362.4 million, up 15.3% from the year-ago quarter.

Region-wise, revenues from North America increased 18.7% year over year and represented 78.4% of revenues. Europe contributed 16.1% to revenues, which increased 9.6% year over year. The remaining 5.5% came from the Rest of the World where revenues jumped 34%.

Margins

Selling, general & amortization (SG&A) expense, as a percentage of revenues, decreased10 basis points (bps) from the year-ago quarter to 20.4%.

The company reported GAAP operating margin of 17.1% while non-GAAP operating margin came in at 19.6%,

Balance Sheet

Cognizant exited the quarter with cash and cash equivalents (and short-term investments) of $4.9 billion, up from $3.8 billion as of Dec 31, 2014. The company's long term debt stood at $881.2 million compared with $937.5 million as of Dec 31, 2014.

Cognizant repurchased $375 million worth of shares in 2015.

Guidance

For the first quarter of 2016, the company expects revenues in a range of $3.18 billion to $3.24 billion. Non-GAAP earnings per share are expected to be in a band of 78 to 80 cents.

For 2016, the company expects non GAAP earnings to be around $3.32 to $3.44 and revenues in the range of $13.65 billion to $14.20 billion.

Our Take

Cognizant has been benefiting from its significant 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, the company remains well-positioned in the outsourcing market. We believe that growing demand for offshore services beyond traditional IT outsourcing -- BPO (Business Process Outsourcing), KPO (Knowledge Process Outsourcing) and IT infrastructure services -- bode well for the company.

However, 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. WIT .

Currently, Cognizant has a Zacks Rank #3 (Hold).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

COGNIZANT TECH (CTSH): Free Stock Analysis Report

WIPRO LTD-ADR (WIT): Free Stock Analysis Report

INFOSYS LTD (INFY): Free Stock Analysis Report

ACCENTURE PLC (ACN): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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.

In This Story

CTSH INFY ACN WIT

Other Topics

Earnings Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More