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Why Is Cognizant (CTSH) Up 1.1% Since Last Earnings Report?
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A month has gone by since the last earnings report for Cognizant (CTSH - Free Report) . Shares have added about 1.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cognizant due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Cognizant Q2 Earnings Beat Estimates, Revenues Down Y/Y
Cognizant Technology Solutions reported non-GAAP earnings of $1.17 per share in second-quarter 2024, which beat the Zacks Consensus Estimate by 4.46% and increased 6.4% year over year.
Revenues of $4.85 billion beat the consensus mark by 0.91%. The top line dropped 0.7% year over year and 0.5% at constant currency (cc). Acquisitions contributed 60 basis points (bps) to top-line growth.
On a trailing twelve-month basis, bookings increased 5% year over year to $26.2 billion, which represented a book-to-bill of approximately 1.4 times. Five deals, each more than $100 million in TCV, were signed, along with two deals over $90 million each.
Top-Line Details
Financial services revenues (29.9% of revenues) dropped 1.1% year over year (down 0.8% at cc) to $1.447 billion. A challenging demand environment caused the downside.
Health Sciences revenues (30.1% of revenues) increased 1.5% year over year (up 1.7% at cc) to $1.461 billion. The uptick can be attributed to the strong demand in data and cloud mordernization.
Products and Resources revenues (23.2% of revenues) fell 4.3% year over year (down 4.1% at cc) to $1.12 billion.
Communications, Media and Technology revenues (16.8% of revenues) were $816 million, which increased 1.2% from the year-ago quarter (up 1.4% at cc). The segment benefited from new acquisitions and the ramp of new bookings.
Region-wise, revenues from North America increased 0.9% year over year (up 0.9% at cc) and contributed 74.6% to total revenues.
Revenues from Europe fell 5.5% year over year (down 5.2% at cc) and contributed 18.9% to total revenues. Revenues from the U.K. declined 6.1% (down 6.5% at cc). Continental Europe revenues decreased 4.9% (down 4% at cc).
The Rest of the World revenues decreased 4.2% year over year (down 2% at cc) and contributed 6.5% to total revenues.
Operating Details
Selling, general & administrative expenses, as a percentage of revenues, contracted 90 bps year over year to 16.1%.
Total headcount at the end of the second quarter was 336,300 compared with 344,400 in the previous quarter.
Voluntary attrition - Tech Services on a trailing-12-month basis declined to 13.6% down from 19.9% for the period ended Jun 30, 2023.
Cognizant reported a GAAP operating margin of 14.6%, expanding 280 bps on a year-over-year basis.
The company incurred $29 million in costs related to the NextGen program, negatively impacting the GAAP operating margin by 60 bps.
Non-GAAP operating margin (adjusted for NextGen charges) of 15.2% expanded 100 bps year over year.
Balance Sheet
CTSH had cash and short-term investments of $2.2 billion as of Jun 30, 2024, compared with $2.24 billion as of Mar 31, 2024.
As of Jun 30, 2024, the company had a total debt of $623 million, down from $631 million reported as of Mar 31, 2024.
It generated $262 million in cash from operations compared with $95 million in the previous quarter.
Free cash flow was $183 million compared with free cash flow of $659 million reported in the prior quarter.
In the second quarter of 2024, the company returned $226 million through share repurchases.
Guidance
Cognizant expects third-quarter 2024 revenues to be between $4.89 billion and $4.96 billion, indicating a decline of 0.2% to an increase of 1.3% (an increase of 1.5% on a cc basis).
In the Financial Services segment, Cognizant continues to expect the challenging macro environment to hurt spending rates, thereby negatively impacting top-line growth.
For 2024, revenues are expected to be $19.3-$19.5 billion, indicating a decline of 0.5% to growth of 1% on a reported basis and a cc basis. Acquisitions are expected to contribute 70 bps.
Adjusted operating margin for 2024 is expected to be between 15.3% and 15.5%.
Adjusted earnings for 2024 are expected between $4.62 and $4.70 per share.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, Cognizant has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Cognizant has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Cognizant is part of the Zacks Business - Software Services industry. Over the past month, MSCI (MSCI - Free Report) , a stock from the same industry, has gained 6.2%. The company reported its results for the quarter ended June 2024 more than a month ago.
MSCI reported revenues of $707.95 million in the last reported quarter, representing a year-over-year change of +14%. EPS of $3.64 for the same period compares with $3.26 a year ago.
MSCI is expected to post earnings of $3.75 per share for the current quarter, representing a year-over-year change of +8.7%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
MSCI has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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Why Is Cognizant (CTSH) Up 1.1% Since Last Earnings Report?
A month has gone by since the last earnings report for Cognizant (CTSH - Free Report) . Shares have added about 1.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cognizant due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Cognizant Q2 Earnings Beat Estimates, Revenues Down Y/Y
Cognizant Technology Solutions reported non-GAAP earnings of $1.17 per share in second-quarter 2024, which beat the Zacks Consensus Estimate by 4.46% and increased 6.4% year over year.
Revenues of $4.85 billion beat the consensus mark by 0.91%. The top line dropped 0.7% year over year and 0.5% at constant currency (cc). Acquisitions contributed 60 basis points (bps) to top-line growth.
On a trailing twelve-month basis, bookings increased 5% year over year to $26.2 billion, which represented a book-to-bill of approximately 1.4 times. Five deals, each more than $100 million in TCV, were signed, along with two deals over $90 million each.
Top-Line Details
Financial services revenues (29.9% of revenues) dropped 1.1% year over year (down 0.8% at cc) to $1.447 billion. A challenging demand environment caused the downside.
Health Sciences revenues (30.1% of revenues) increased 1.5% year over year (up 1.7% at cc) to $1.461 billion. The uptick can be attributed to the strong demand in data and cloud mordernization.
Products and Resources revenues (23.2% of revenues) fell 4.3% year over year (down 4.1% at cc) to $1.12 billion.
Communications, Media and Technology revenues (16.8% of revenues) were $816 million, which increased 1.2% from the year-ago quarter (up 1.4% at cc). The segment benefited from new acquisitions and the ramp of new bookings.
Region-wise, revenues from North America increased 0.9% year over year (up 0.9% at cc) and contributed 74.6% to total revenues.
Revenues from Europe fell 5.5% year over year (down 5.2% at cc) and contributed 18.9% to total revenues. Revenues from the U.K. declined 6.1% (down 6.5% at cc). Continental Europe revenues decreased 4.9% (down 4% at cc).
The Rest of the World revenues decreased 4.2% year over year (down 2% at cc) and contributed 6.5% to total revenues.
Operating Details
Selling, general & administrative expenses, as a percentage of revenues, contracted 90 bps year over year to 16.1%.
Total headcount at the end of the second quarter was 336,300 compared with 344,400 in the previous quarter.
Voluntary attrition - Tech Services on a trailing-12-month basis declined to 13.6% down from 19.9% for the period ended Jun 30, 2023.
Cognizant reported a GAAP operating margin of 14.6%, expanding 280 bps on a year-over-year basis.
The company incurred $29 million in costs related to the NextGen program, negatively impacting the GAAP operating margin by 60 bps.
Non-GAAP operating margin (adjusted for NextGen charges) of 15.2% expanded 100 bps year over year.
Balance Sheet
CTSH had cash and short-term investments of $2.2 billion as of Jun 30, 2024, compared with $2.24 billion as of Mar 31, 2024.
As of Jun 30, 2024, the company had a total debt of $623 million, down from $631 million reported as of Mar 31, 2024.
It generated $262 million in cash from operations compared with $95 million in the previous quarter.
Free cash flow was $183 million compared with free cash flow of $659 million reported in the prior quarter.
In the second quarter of 2024, the company returned $226 million through share repurchases.
Guidance
Cognizant expects third-quarter 2024 revenues to be between $4.89 billion and $4.96 billion, indicating a decline of 0.2% to an increase of 1.3% (an increase of 1.5% on a cc basis).
In the Financial Services segment, Cognizant continues to expect the challenging macro environment to hurt spending rates, thereby negatively impacting top-line growth.
For 2024, revenues are expected to be $19.3-$19.5 billion, indicating a decline of 0.5% to growth of 1% on a reported basis and a cc basis. Acquisitions are expected to contribute 70 bps.
Adjusted operating margin for 2024 is expected to be between 15.3% and 15.5%.
Adjusted earnings for 2024 are expected between $4.62 and $4.70 per share.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, Cognizant has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Cognizant has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Cognizant is part of the Zacks Business - Software Services industry. Over the past month, MSCI (MSCI - Free Report) , a stock from the same industry, has gained 6.2%. The company reported its results for the quarter ended June 2024 more than a month ago.
MSCI reported revenues of $707.95 million in the last reported quarter, representing a year-over-year change of +14%. EPS of $3.64 for the same period compares with $3.26 a year ago.
MSCI is expected to post earnings of $3.75 per share for the current quarter, representing a year-over-year change of +8.7%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
MSCI has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.