What's in the Cards for Cognizant (CTSH) in Q3 Earnings?

Cognizant Technology Solutions CorpCTSH is set to report third-quarter 2018 results on Oct 30. The company's earnings have beaten the Zacks Consensus Estimate in all of the trailing four quarters, delivering an average positive surprise of 4.62%.

In the last reported quarter (second-quarter 2018), Cognizant's adjusted earnings outpaced the Zacks Consensus Estimate by nine cents.

Moreover, the company's top line has beaten the consensus mark in two of the trailing four quarters. In second-quarter 2018, revenues came in at $4.01 billion, lagging the Zacks Consensus Estimate of $4.02 billion but increasing 9.2% from the year-ago quarter.

For third-quarter 2018, Cognizant expects revenues of $4.06-$4.10 billion. Non-GAAP earnings are expected to be at least $1.13 per share.

The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $4.08 billion, which reflects year-over-year growth of 8.3%. Moreover, the consensus mark for earnings has been steady at $1.13 over the last seven days.

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

Acquisitions Driving Domain Expertise

Cognizant is gaining from steady demand across payer clients and increasing interest in the company's digital, analytics, cloud and virtualization solutions. The company is consistently developing its capabilities to gain from the ongoing digital transition, especially from the integration of the new digital framework with legacy technology platforms.

Cognizant Technology Solutions Corporation Price and EPS Surprise

Cognizant Technology Solutions Corporation Price and EPS Surprise | Cognizant Technology Solutions Corporation Quote

The company's strategic customer base (clients with the potential to generate $5-$50 million or more in annual revenues) continues to expand. Cognizant now has more than 371 strategic clients.

Acquisitions such as the Adaptra, TriZetto, Bolder Healthcare, Mirabeau BV, and the technology and business process services unit of Frontica Business Solutions AS are benefiting the company. Cognizant has not only gained new customers from these buyouts but also expanded its digital delivery capabilities.

Notably, acquisitions like Netcentric and Mirabeau strengthened Cognizant's digital leadership in Europe. Outsourcing growth benefited from the acquisition of Bolder Healthcare.

The acquisition of Advanced Technology Group (ATG), which has deep Quote-to-Cash (Q2C) domain expertise and offers extensive Salesforce based CPQ and Billing solutions, strengthens Cognizant's cloud solutions portfolio.

Moreover, the acquisition of privately-held consulting firm, SaaSfocus expands Cognizant's end-to-end digital transformation services in the Asia-Pacific (APAC) region, particularly Australia and India. Notably, SaaSfocus is one of the largest independent Salesforce Platinum consulting partners in this fast growing region.

However, the company faces significant geographic, domain and customer concentration risks. Further, lackluster spending by large banks in the financial services sector and stiff competition in the IT services market are concerns.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP . The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Cognizant has a Zacks Rank #3 but its Earnings ESP is 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Stocks to Consider

Here are some companies, which, per our model, have the right combination of elements to post earnings beat this quarter:

Himax Technologies, Inc. HIMX has an Earnings ESP of +11.11% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

HubSpot, Inc. HUBS has an Earnings ESP of +57.58% and a Zacks Rank #2.

Apple AAPL has an Earnings ESP of +1.06% and a Zacks Rank #2.

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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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