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What's in the Offing for Cognizant (CTSH) in Q1 Earnings?

Zacks Equity Research
Updated

Cognizant Technology Solutions Corp CTSH is set to report first-quarter 2018 results on May 7. In the trailing four quarters, the company’s earnings have beaten the Zacks Consensus Estimate on three occasions, delivering an average positive surprise of 3.17%.

In the last reported quarter, Cognizant delivered a positive earnings surprise of 6.19%. Revenues of $3.83 billion were in line with the Zacks Consensus Estimate and increased 10.6% year over year driven by growth in all the four domains.

For first-quarter 2018, Cognizant expects revenues in the range of $3.88-$3.92 billion. Non-GAAP earnings are expected to be at least $1.04 per share.

The Zacks Consensus Estimate for first-quarter earnings has remained steady at $1.05 over the last seven days, reflecting year-over-year growth of 25%. The consensus mark for revenues currently stands at $3.90 billion, reflecting year-over-year growth of almost 10%.
 

Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise

Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise | Cognizant Technology Solutions Corporation Quote

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Let’s see how things are shaping up for this announcement.

Domain Expertise: Key Catalyst

Cognizant is consistently developing its capabilities to gain from the ongoing digital transition, especially from the integration of the new digital framework with legacy technology platforms.

Cognizant’s strong growth can be attributed to its significant exposure to fast-growing verticals like Financial Services and Healthcare.

Notably, Financial Services segment is driven by growth in insurance companies and mid-tier banks, which offset the softness from large banks.

Moreover, higher demand from payer and top-tier consulting clients in the healthcare segment is likely to help the company sustain the momentum. The company serves more than 430 organizations that support more than 70% of the Medicare Advantage and managed Medicaid markets.

The company’s strategic customer base (clients with the potential to generate $5-$15 million or more in annual revenues) continues to expand. Cognizant now has more than 357 strategic clients.

Acquisitions & Partnerships: Other Drivers

Moreover, acquisitions have been a key growth driver for Cognizant. Buyouts like Japan-based Brilliant Service, Adobe partner Netcentric, and Zone, a U.K. based digital aganecy have widened the company’s domain and overall digital delivery capabilities.

The acquisition of TMG Health has expanded Cognizant’s position as a leading software-as-a-service (SaaS) healthcare partner in a growing market for government programs.

Additionally, the company gained deep industry expertise and knowledge of the domains through partnerships with top firms like Microsoft and SAP SE.

The partnerships with leading IT-firms have enabled the company to deliver more value to clients and capitalize on new opportunities. It has also provided a competitive edge against the likes of Accenture, Infosys and Wipro.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Cognizant has a Zacks Rank #2 but its Earnings ESP is -1.35%. Consequently, our proven model does not conclusively show that the company is likely to deliver a positive surprise this quarter.

Stocks That Warrant a Look

Here are three stocks that you may want to consider as our model shows that it has the right combination of elements to deliver an earnings beat in its upcoming release.

Microchip MCHP has an Earnings ESP of +0.15% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arrow Electronics ARW has an Earnings ESP of +0.66% and a Zacks Rank #2.

CyberArk Software CYBR has an Earnings ESP of +3.53% and a Zacks Rank #3.

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Cognizant Technology Solutions Corporation (CTSH) : Free Stock Analysis Report
 
CyberArk Software Ltd. (CYBR) : Free Stock Analysis Report
 
Arrow Electronics, Inc. (ARW) : Free Stock Analysis Report
 
Microchip Technology Incorporated (MCHP) : Free Stock Analysis Report
 
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