We recently reiterated our Neutral rating on Cognizant Technology Solutions (CTSH).
Earlier this month, Cognizant reported results for the first quarter, beating the Street’s expectations.
Growth in the first quarter came from all geographies, but North America in particular was quite strong. Recovery was also strong in the United Kingdom, whereas other countries in Europe have been experiencing slower economic recoveries and a negative impact from weaker currencies.
Net income came in at $151.5 million or 49 cents per share, compared to net income of $113.1 million or 38 cents per share in the previous quarter. This beat the Zacks Consensus Estimate by a penny.
Management increased its guidance for 2010 on the backdrop of an improving macroeconomic environment. In 2009, the company 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.
For 2010, Cognizant expects revenues of at least $4.1 billion, up from the previous estimate of $3.935 billion, and an increase of 25% from 2009.
As the economy begins to recover, many companies start investing more in development projects rather than just maintenance projects. Moreover, many companies are increasingly opting for offshoring services beyond the traditional IT sourcing, namely BPO (Business Process Outsourcing), KPO (Knowledge Process Outsourcing) and IT infrastructure services.
Though there is an element of uncertainty about the level of new economic activity in key markets, Cognizant believes “offshoring” will constitute a large proportion of its IT budget compared to 2009.
Given the early signs of economic recovery, we expect growth to accelerate in the coming quarters. As of now, our long-term recommendation for Cognizant is Neutral.
Read the full analyst report on “CTSH”
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