Bangalore: Cognizant Technology Solutions Corp reported a quarterly profit that breezed past market estimates and unveiled a strong outlook for the year as technology spending rebounded in an improving economy.
Shares of the IT services provider - whose rivals include Tata Consultancy Services (TCS), Infosys Technologies and Wipro - climbed 3% in trading before the bell.
The magnitude of the beat in terms of both results - the company beat profit estimates for the fourth straight quarter - and outlook highlighted the recovery in the IT services sector.
“It looks good,” Kaufman Bros analyst Karl Keirstead said. “The key metric from the release is the guidance for 20% growth in 2010. That’s what the buy side was expecting.”
With Cognizant, expectations from investors tend to be higher than that of Wall Street estimates. So a beat is usually not enough to please the buy side.
“And I think there’s going to be consensus that that’s a conservative guide and they’ll be able to ultimately grow north of that,” Keirstead added.
About 80% of the revenue for the Teaneck, New Jersey-based company - whose majority employees and development centers are based in India - comes from North America.
The numbers showed Cognizant, which also competes with larger players like Accenture, Hewlett-Packard and IBM, was continuing to gain market share.
The company is definitely gaining share from firms such as IBM and Accenture and it is even gaining share within its key verticals against Infosys, Wipro and Tata Consultancy, analyst Keirstead said.
Key markets for Cognizant include financial services, its biggest segment, which contributed 43% to third-quarter revenue, and healthcare.
Fourth-quarter net income rose to $144 million, or 47 cents a share, from $112.3 million, or 38 cents a share, a year earlier. Excluding items, earnings were 50 cents a share. Revenue rose 20% to $902.7 million.
Analysts expected earnings of 46 cents a share, excluding exceptional items, on revenue of $888.4 million, according to Thomson Reuters I/B/E/S.
For 2010, the company forecast earnings of at least $2.19 a share, excluding items, on revenue of at least $3.94 billion.
Analysts were looking for earnings of $2.01 a share, excluding exceptional items, on revenue of $3.92 billion.
For the first quarter, Cognizant expects earnings of 52 cents a share, excluding items, on revenue of at least $935 million.
Analysts were looking for earnings of 47 cents a share, excluding exceptional items, on revenue of $912.6 million.
Shares of the company were up $1.24 at $44.98 in trading before the bell Tuesday. They closed at $43.74 Monday on Nasdaq.
Ahead of Tuesday’s results, the stock has gained 122% in the last 52 weeks. But since hitting a 52-week high of $48.95 on Jan. 13, Cognizant’s stock shed 11% due to a recent slide in broader markets.
“We expect the stock to outperform the market by 20% during the next six to 12 months,” Cowen & Co analyst Moshe Katri wrote in a note to clients.