What's In Store For Cognizant (CTSH) This Earnings Season?

Cognizant Technology Solutions (NASDAQ:CTSH) is set to report first-quarter 2019 results on May 2.

Notably, the company’s earnings have beaten the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 5.52%.

In the last reported quarter, Cognizant’s non-GAAP earnings of $1.13 per share beat the Zacks Consensus Estimate by 8 cents. Revenues of $4.129 billion comfortably surpassed the consensus mark of $4.114 billion.

For first-quarter 2019, Cognizant expects revenues of $4.06-$4.10 billion. Non-GAAP earnings are expected to be at least $1.13 per share.

The Zacks Consensus Estimate for first-quarter revenues is currently pegged at $4.17 billion, indicating growth of 6.5% from the figure reported in the year-ago quarter.

Moreover, the consensus mark for earnings has been steady at $1.03 over the last 30 days but indicates a year-over-year decline of 2.8%.

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

Factors to Consider

Cognizant is gaining from steady demand across payer clients and increasing interest in the company’s digital, analytics, cloud and virtualization solutions. The company 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.

The company’s strategic customer base (clients with the potential to generate $5-$50 million or more in annual revenues) continues to expand. It now has more than 385 strategic clients.

Moreover, acquisitions have played an important part in charting out Cognizant’s growth trajectory. The buyouts have not only strengthened Cognizant’s digital capabilities but also its clientele. Additionally, acquisitions have helped the company expand in countries like Belgium, the Netherlands, Romania and Australia.

The aforesaid factors are expected to boost Cognizant’s soon-to-be-reported quarter results.

Moreover, during the first-quarter 2019, Cognizant acquired Meritsoft, a Dublin-based privately-held financial software company. The buyout not only strengthened the company’s software-as-a-Service (SaaS) portfolio but also expanded its footprint among financial institutions.

Notably, the financial services domain accounted for a significant part (35.1% of fourth-quarter 2018 revenues) of the company’s top line. Although Cognizant has been witnessing strong growth among insurance customers, sluggish spending by large banks has been a drag on top-line growth.

In order to expand its presence among banking customers globally, Cognizant also bought Finland-based IT management firm Samlink (expected to be completed on Apr 1, 2019). As part of the deal, the company was selected by three Finnish financial institutions — Savings Banks Group, Oma Savings Bank and POP Bank Group — to build and operate a shared core banking platform.

However, this deal will not have any material impact on Cognizant’s first-quarter 2019 results.

Cognizant is also expected to benefit from aggressive share buyback. The company plans to use 50% of global free cash flow toward share repurchase. Lower share count provides a boost to the bottom line.

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. Meanwhile, Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Cognizant has a Zacks Rank #3 but its Earnings ESP is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With Favorable Combination

Here are a few stocks you may want to consider as our model shows that these have the right combination of elements to post an earnings beat.

Upland Software (NASDAQ:UPLD) has an Earnings ESP of +0.32% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

FUJIFILM (OTC:FUJIY) has an Earnings ESP of +20.55% and a Zacks Rank #1.

Intuit (NASDAQ:INTU) has an Earnings ESP of +1.49% and a Zacks Rank #2.

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