Why Shares of Cognizant Technology Solutions Corp. Surged Today

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What: Shares of IT services firm Cognizant Technology Solutions surged on Monday after the company reported revenue and earnings for its first quarter that were slightly higher than what analysts were expecting. Up as much as 11% Monday morning, the stock had settled a bit by noon, up 8% at that time.

So what: Cognizant reported revenue of $2.91 billion, up 20.2% year-over-year and $20 million higher than analyst expectations. Non-GAAP EPS was $0.71 for the quarter, up from $0.62 in the first quarter of 2014 and a penny better than the consensus analyst estimate. On a GAAP basis, EPS of $0.62 increased from $0.57 in the first quarter of 2014.

Cognizant's Healthcare segment, which accounts for 30% of the company's total revenue, grew by 42.7% year-over-year during the first quarter. The company's largest segment, Financial Services, grew by 13.4%, and Manufacturing/Retail/Logistics grew by a slower 7.2%. Geographically, North America, which accounts for the vast majority of Cognizant's revenue, grew by 24.8%, while Europe grew by just 1.2%.

The company guided for second-quarter revenue of at least $3.01 billion and non-GAAP EPS of at least $0.72, mostly in-line with analyst estimates.

Now what: Cognizant's strong quarter pushed the stock up to a new 52-week high on Monday. The company has a long history of strong, reliable growth, and analysts expect this growth to continue. The average analyst estimate for annual earnings growth over the next five years is 16.7%.

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Accounting for the stock's rise today, Cognizant now trades at a P/E ratio of about 27 based on 2014 earnings. Investors considering the stock will need to weigh the company's growth prospects along with this fairly lofty valuation.

The article Why Shares of Cognizant Technology Solutions Corp. Surged Today originally appeared on Fool.com.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Apple and Cognizant Technology Solutions. The Motley Fool owns shares of Apple and Cognizant Technology Solutions. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.