Cognizant Technology Solutions Corp. (CTSH) yesterday reported revenue of $776.6 million, up 13% year over year and up 4% sequentially, beating management’s guidance of $760 million. Financial services, which accounts for 43% of total revenues, displayed signs of stability.

Headquartered in Teaneck, New Jersey, Cognizant is a leading provider of information technology, consulting and business process outsourcing services for Fortune 1000 customers.

GAAP operating margin came in at 19.5% compared to 17.5% in the year-ago quarter. Excluding stock based compensation expense of $8.4 million and stock-based Indian fringe benefit tax expense of $1.3 million, non-GAAP operating margin was 20.8%, above the company’s targeted range of 19% -20%.

GAAP EPS came in at $0.47 compared to $0.35 in the previous quarter. Non-GAAP EPS (excluding stock based compensation and stock-based Indian fringe benefit tax expense) came in at $0.50 easily beating the Zacks consensus of $0.37.

Based on a strong first half, Cognizant upgraded its guidance for 2009. Though the management remains cautions about the macroeconomic environment, visibility and confidence in the demand environment have strengthened over the past two months.

Nevertheless, demand for global IT and business services have stabilized with clients moving forward on their scheduled projects, especially those that help streamline their businesses and reduce operational costs. However, management is not expecting any surge in growth or a strong recovery in demand this year.

Management now expects 2009 revenue to grow by at least 11.5% to $3.14 billion, up from the previous guidance of 10%. Non-GAAP EPS is projected at $1.80.

For fiscal third quarter, Cognizant expects revenue of at least $800 million. Non-GAAP EPS is projected at $0.44.

Compared to its competitors, Cognizant is setting a more robust tone going forward. Earlier, peers like Tata Consultancy Services Ltd. and Infosys Technologies Ltd. (INFY) posted strong quarterly results but maintained a cautious outlook. Infosys raised its annual guidance marginally and saw a recovery in IT spending only by mid-2010.

Cognizant continues to outperform its peers and remains a leader in IT services. The stock has gained almost 70% in the past six months. We maintain our Hold on Cognizant.

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