Cognizant Beats, Ups Guidance - Analyst Blog

Leading information technology services provider Cognizant Technology Solutions Corporation (CTSH) reported revenues of $1.217 billion in the third quarter of 2010, up 43% year over year and up 10.1% sequentially,  exceeding the Zacks Consensus Estimate of $1.184 billion and management's expectation of at least $1.175 million.

The solid growth in the quarter was driven by broad-based growth across all industries, service lines and geographies. Cognizant stressed that clients are not just seeking cost efficiencies, but are also stepping up investments in their business platforms and new capabilities to drive growth and innovation. The company competes with Infosys Technologies Ltd. (INFY) and Wipro Limited (WIT) in this space.

Cognizant made significant investments in new areas, including consulting and emerging markets, new solutions such as enterprise analytics, and new technologies such as cloud and mobile computing. These efforts should continue to drive growth in the coming quarters.

Operating margin came in at 18.8%. Excluding stock-based compensation expenses of $14.1 million, Cognizant posted an operating margin of 19.9%, flat with the previous quarter, but within management's targeted range of 19%−20%.

Net income came in at $203.7 million or 66 cents per share compared to net income of $172.2 million or 56 cents in the second quarter and net income of $136.6 million or 45 cents in the year-ago quarter. This beat the Zacks Consensus Estimate of 60 cents and management's guidance of 59 cents.

Excluding stock-based compensation expenses and applicable stock-based Indian fringe benefit tax expenses, EPS came in at 69 cents, compared to 48 cents in the year-earlier quarter.

Going forward, management expects revenues of at least $1.27 billion in the fourth quarter of 2010. EPS is projected at 64 cents. Excluding stock-based compensation expenses, EPS is forecasted at 68 cents. The strong performance in the third quarter boosted the guidance provided earlier.

Cognizant now expects revenues of at least $4.55 billion in 2010, up from the previous estimate of $4.46 billion, and an increase of 38.8% from 2009. EPS is likely to be at least $2.35, up from the previous estimate of $2.26. Excluding 15 cents of estimated stock-based compensation expenses, EPS is forecasted at $2.50, up from the earlier forecast of $2.42.