Cognizant (CTSH) Up 11.1% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Cognizant Technology Solutions Corporation CTSH. Shares have added about 11.1% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it 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 drivers.

Cognizant Q1 Earnings Beat Estimates, View Intact

Cognizant’s first-quarter 2017 adjusted earnings of $0.79 per share beat the Zacks Consensus Estimate of $0.75. The company reported non-GAAP earnings of $0.84 a share compared with $0.80 reported in the prior-year quarter.

Revenues of $3.546 billion beat the Zacks Consensus Estimate of $3.522 billion. Also, sales grew 10.7% year over year.

Quarter Details

Segment-wise, Financial services (38.8% of revenues), that includes insurance, banking and transaction processing, grew 7% year over year to $1.376 billion. Health care (28.3% of revenues) grew 9.7% year over year to $1.003 billion.

Products and Resources (20.8% of revenues) continued its growth momentum and rose 16.4% year over year to $737 million. Communications, Media and Technology (12.1% of revenues) were $430 million, up 16.5% from the year-ago quarter.

Region-wise, revenues from North America increased 10.6% year over year and represented 77.9% of total revenue. Revenues from the U.K. declined 8.4% year over year (7.7% of the total revenues), though the Rest of Europe witnessed an increase of 26.1% in sales, which contributed 8% to total revenue. The remaining 6.4% came from the Rest of the World where revenues increased 25.6%.

Selling, general & amortization (SG&A) expense, as a percentage of revenues, improved 90 basis points (bps) from the year-ago quarter to 19.3%.

The company reported non-GAAP operating margin of 18.9%.

Balance Sheet

Cognizant exited the quarter with cash and cash equivalents (and short-term investments) of $4.274 billion, compared with $5.169 billion as of Dec 31, 2016. The company’s long-term debt was $772 million compared with $797 million as of Dec 31, 2016.

Guidance

For the second quarter of 2017, the company expects revenues in a range of $3.63–$3.68 billion. Non-GAAP earnings per share are expected to be $0.89.

Cognizant reiterated its guidance for 2017. Revenues are now expected to be in a range of $14.56–$14.84 billion while non-GAAP earnings are likely to be $3.64 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.

Cognizant Technology Solutions Corporation Price and Consensus

 

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

VGM Scores

At this time, Cognizant's stock has an average Growth Score of 'C', a grade with the same score on the momentum front. Following the exact same course, the stock was allocated also a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

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

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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