Cognizant Technology Solutions Corporation
(CTSH) reported revenues of $959.7 million in the first quarter of 2010, up 28.7% year over year and up 6.3% sequentially.

Operating margin came in at 19.1%. Excluding stock-based compensation expense of $13.9 million, operating margin came in at 20.5%, above management’s targeted range of 19-20%.

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.

Excluding stock-based compensation expense and applicable stock-based Indian fringe benefit tax expenses, EPS was 53 cents, compared to 41 cents in the year-ago quarter.

Going forward, management expects revenues of at least $1.015 million in the second quarter of 2010. EPS is projected at 51 cents. Excluding stock-based compensation expense, EPS is forecasted at 55 cents.

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. EPS is estimated to be $2.10. Excluding $0.16 of estimated stock-based compensation expense, EPS is forecasted to be $2.26.

On the last call, management stated that the global economic scenario is showing signs of recovery and the business environment has become more stable compared to year-end 2009. IT spending is expected to get a boost in 2010 and Cognizant expects to win significant business.

Though there is an element of uncertainty about the level of new economic activity in key markets, Cognizant believes “offshoring” as a proportion of IT budgets will increase compared to 2009.

Given the early signs of economic recovery, we expect growth to accelerate in the coming quarters. Headquartered in Teaneck, New Jersey, Cognizant is a leading provider of custom information technology to Fortune 1000 customers. The company competes with Infosys Technologies Ltd. (INFY) and Wipro Limited (WIT) in this space.


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