Cognizant Technology Looks Ahead to a Strong Finish in 2015

By Dan

Image: Cognizant Technology Solutions.

Over time, Cognizant Technology Solutions has done a great job in capturing the market for business customers trying to squeeze as much productivity and efficiency from their technology. Like Indian rival Infosys , Cognizant has used a large abroad workforce to reap impressive profits, and coming into its third-quarter financial report Wednesday, Cognizant investors expected to see double-digit percentage growth in revenue and net income. Cognizant delivered on both fronts, and it also believes that the remainder of 2015 will be brighter than it had originally thought. Let's look more closely at what Cognizant said about its most recent quarter and what's next for the IT specialist down the road.

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Cognizant keeps up its positive momentum Cognizant's third-quarter results represented a nice follow-up to its past performance. Sales rose more than 23% to $3.19 billion, beating the $3.16 billion consensus forecast among those following the stock. Net income rose about 12% to $397.2 million, and after allowing for extraordinary items, adjusted earnings of $0.76 per share exactly matched expectations from investors.

Breaking down the numbers by segment, Cognizant continued to get the most growth from healthcare, where sales jumped 43% to $939 million. Financial services remained the big-ticket performer from a revenue standpoint at $1.28 billion, up almost 19% year over year, while the manufacturing, retail, and logistics sector also posted more modest growth of around 14%. Other revenue rose 15% from the third quarter of 2014.

Currency impacts once again showed up in Cognizant's geographical figures, with North American sales soaring by 27% to $2.51 billion. Europe's growth was more muted at 7.8%, and another healthy rise of 31% in the Rest of World segment showed how international expansion is becoming more of a priority for Cognizant.

Cognizant CEO Francisco D'Souza said he was happy at how well the company did. "As clients worldwide shift spending toward investments that drive innovation and growth in the digital era," D'Souza said, "our portfolio of services is well-positioned to meet their needs and capture a disproportionate share of the market."

Cognizant boosts guidance againExecutives also see plenty of good things ahead for Cognizant. In the words of company President Gordon Coburn, "Our third-quarter results and increased guidance for the full year clearly demonstrate that clients are turning to Cognizant to help them transition into digital enterprises while optimizing their traditional investments in technology and business processes." He sees Cognizant's investments in innovation as making the company best-suited to meet those needs.

As we've seen a couple of times recently, Cognizant followed up with a guidance boost. The company now sees revenue coming in at $12.41 billion, up $80 million from its previous guidance, with a $0.03 per share boost in earnings to $3.03 per share for the full year. Guidance for the fourth quarter included $3.23 billion in revenue and adjusted earnings of $0.77 per share, and both figures were exactly in line with the consensus forecast among those following Cognizant.

The big question that Cognizant faces is how it can keep its competition at bay. In its most recent quarterly report, Infosys noted that it sees what CEO Dr. Vishal Sikka called "a once-in-a-generation opportunity" for clients to use technology. Infosys enjoyed some large wins in its client base during the quarter, providing technology for the ATP tennis tour, creating a web-based portal for U.S. federal employees, and several major businesses in industries ranging from retail to food service and payment technology. Cognizant has done a good job of winning its fair share of business from Infosys, but both Infosys and Cognizant can expect even fiercer competition in the future.

Cognizant investors weren't all that excited about the company merely matching expectations for third-quarter earnings, sending the stock down sharply after the announcement. Cognizant has plenty of potential to rebound, but to do so, it will have to figure out how to find lasting competitive advantages that will hold Infosys and other firms in check well into the future.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.

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