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Why Is Cognizant (CTSH) Up 8.8% Since Its Last Earnings Report?

It has been about a month since the last earnings report for Cognizant Technology Solutions CorporationCTSH . Shares have added about 8.8% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is CTSH due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Cognizant reported fourth-quarter 2017 non-GAAP earnings of $1.03 per share, which beat the Zacks Consensus Estimate by 6 cents and increased 18.4% from the year-ago quarter. The figure was better than management's expectation of 98 cents.

The company recorded a one-time provisional income tax expense of $617 million related to the Tax Reform Act, which reduced GAAP earnings by $1.04 per share in the fourth quarter. This one-time expense was primarily attributable to the deemed repatriation tax on undistributed earnings of foreign subsidiaries.

Revenues of $3.83 billion were in line with the Zacks Consensus Estimate but improved 10.6% year over year driven by growth in all the four domains. The figure was within management's guidance of $3.79-$3.85 billion.

2017 at a Glance

In 2017, earnings increased 11.2% year over year to $3.77 per share.

Revenues increased 9.8% to $14.81 billion. Segment-wise, Financial services (38.1% of revenues) Healthcare (28.8% of revenues), Products and Resources (20.5% of revenues) and Communications, Media and Technology (12.6% of revenues) improved 5%, 10.1%, 14.3% and 17.7%, respectively.

The results indicate the company's ability to harness the ongoing digital transition. Moreover, Cognizant is benefiting from accretive acquisitions. The company completed the acquisition of Netcentric and Zone in the fourth quarter.

Further, the company has attained deep industry expertise and knowledge of the domains through partnerships with top firms like Microsoft and SAP SE.

This strategy has enabled Cognizant to deliver more value to clients and capitalize on new opportunities. It has also provided a competitive edge against the likes of Accenture, Infosys and Wipro Ltd.

Quarter Details

Segment-wise, Financial services (37.3% of revenues), which includes insurance, banking and transaction processing, grew 5.4% year over year to $1.43 billion. The segment was driven by double-digit growth in insurance companies and mid-tier banks, which offset the softness arising from large banks.

Healthcare (29.4% of revenues) grew 11.9% year over year to $1.09 billion. Top-line growth was driven by steady demand across payer clients and increasing interest in the company's digital, analytics, cloud and virtualization solutions.

Products and Resources (20.4% of revenues) continued its growth momentum and improved 13.7% year over year to $782 million driven by growth in manufacturing, logistics, energy and utilities clients.

Communications, Media and Technology (12.9% of revenues) were $494 million, up 19% from the year-ago quarter.

Region-wise, revenues from North America increased 8.5% year over year and represented 77% of total revenues.

Revenues from the United Kingdom increased 5.1% year over year (7.5% of revenues). Rest of Europe continued to show strength with revenues soaring 31.7% from the year-ago quarter. As a result, Europe revenues increased 18.1% from the year-ago quarter to $632 million.

Rest of the World (6.5% of revenues) surged 17.5% to $249 million.

Selling, general & administrative (SG&A) expenses, as a percentage of revenues, declined 280 basis points (bps) from the year-ago quarter to 18.3%.

Cognizant reported non-GAAP operating margin of 19.7%, which expanded 100 bps from the year-ago quarter.

In the quarter ended Dec 31, 2017, cash and cash equivalents (and short-term investments) were $5.06 billion, up from $4.71 billion reported as of Sep 30, 2017.

Cognizant is raising the quarterly cash dividend by 33% to 20 cents per share. Moreover, the company has also formed Cognizant U.S. Foundation, with initial grant of $100 million. The foundation will support STEM (Science, Technology, Engineering and Math) and digital education and skills initiatives for U.S. workers and students.

Guidance

For the first quarter of 2018, Cognizant expects revenues in the range of $3.88-$3.92 billion. Non-GAAP earnings are expected to be at least $1.04 per share.

For 2018, revenues are projected in the range of $16.00-$16.30 billion. Non-GAAP earnings are projected to be at least $4.53 per share.

How Have Estimates Been Moving Since Then?

In the past month , investors have witnessed an upward trend in fresh estimates. There have been nine revisions higher for the current quarter.

Cognizant Technology Solutions Corporation Price and Consensus

Cognizant Technology Solutions Corporation Price and Consensus | Cognizant Technology Solutions Corporation Quote

VGM Scores

At this time, CTSH has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise CTSH has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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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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