Strong Cognizant Q1 seen, all eyes on 2010 view

Strong Cognizant Q1 seen, all eyes on 2010 view

Bangalore: Cognizant Technology Solutions Corp is expected to post strong first-quarter results and possibly increase its outlook for the year, driven by robust demand for outsourcing services.

Investors are looking past the quarter to see how much the IT services provider will grow in 2010.

Some analysts say the company could guide for at least 22% revenue growth in 2010. In February, Cognizant gave a 2010 growth outlook of 20%, an estimate most analysts view as conservative. In 2009, it grew 16%.

The company, which offers business process outsourcing and consulting services, is seen as one of the key beneficiaries of the sharply rebounding $60 billion Indian outsourcing market.

Most of the employees and development centers of Teaneck, New Jersey-based Cognizant are based in India.

“We expect above-consensus results from Cognizant, with growth boosted particularly by segments outside of application outsourcing," Sanford C. Bernstein analyst Rod Bourgeois said.

“Cognizant is likely seeing very strong growth in segments such as enterprise resource planning services, infrastructure outsourcing, and business intelligence."

The results will follow a strong showing by India-based rivals such as Tata Consultancy , Infosys Technologies and Wipro.

Cognizant is expected to do better, given it has been growing faster than rivals and taking market share. Its competitors include US firms like Accenture, Hewlett-Packard and IBM.

Shares of Cognizant have more than doubled in the last 52 weeks, outperforming the broader S&P 500 index, which is up 35% in the same period. Valued at about $15.30 billion, the stock was trading at $51.22 Monday on Nasdaq.

The company trades at a multiple of 24 times its forward earnings — a 51% premium to the sector average, according to StarMine data.

A larger exposure to financial services, which has been leading the market recovery, than its Indian peers will help Cognizant, Kaufman Bros analyst Karl Keirstead said.

During the downturn, Cognizant’s shares were hit on concerns over its sharp financial services exposure, but over the past two quarters the company has been feeding positive commentary on demand from the sector.

A smaller exposure to Europe, where the IT spending rebound is taking shape slowly, and the appreciating Indian rupee will be to its advantage, Keirstead said.

"Cognizant should still be able to outgrow its larger peers in 2010," he said.

For the first quarter, the company is expected to post a 26% growth in revenue and earnings, according to Thomson Reuters.

Cognizant is seen benefiting from a recovery in technology spending, faster-than-market growth and robust demand in North America, which accounts for about 79% of its revenue.

Global IT services spending is seen rising 5.7% to $821 billion in 2010, market researcher Gartner has forecast.

This compares with a 4% drop in 2009.