August 4, 2009 / 10:50 AM / 10 years ago

UPDATE 3-Cognizant Q2 profit beats Wall Street; ups '09 outlook

* Q2 adj EPS $0.47 beats St by 10 cents: Reuters Estimates

* Sees Q3 results above Street expectations

* Increases full-year revenue, profit forecasts

* Shares up as much as 10 pct (Adds conference call details, analysts’ comments, updates share movement)

By Deepti Govind

BANGALORE, Aug 4 (Reuters) - Cognizant Technology Solutions Corp (CTSH.O) wrapped up what has been a strong quarter for IT offshoring firms, with better-than-expected results and a strong outlook as businesses look to its services to cut costs.

Shares of the New Jersey-based company rose as much as 10 percent to a year-high of $33.70 in morning trade on Nasdaq.

Cognizant raised its 2009 outlook, but like its peers Infosys Technologies (INFY.BO) and Tata Consultancy Services (TCS.BO) remained cautious about a “surge” in demand this year.

“Cognizant is continuing to show that it’s by far the industry’s leader in terms of growth,” Stanford Bernstein & Co analyst Rod Bourgeois said by phone.

The company forecast revenue of at least $3.14 billion for 2009 — a projected growth of 11.5 percent from 2008.

It expects full-year earnings of at least $1.80 a share.

Analysts were looking for earnings of $1.54 a share, excluding items, on revenue of $3.10 billion, according to Reuters Estimates.

Chief Executive Francisco D’Souza said the quarterly results indicated that demand for global IT and business services was stabilizing.

“While IT budgets look firm for the remainder of the year, we are being cautious and are not assuming any surge or backend recovery of demand this fiscal year as we have seen in some prior years,” he said.

Cognizant also forecast a third-quarter profit of 44 cents, on an adjusted basis, on revenue of at least $800 million.

Analysts were expecting it to earn 39 cents a share, before items, on revenue of $784 million.

“The September quarter guidance is respectable, and likely on the conservative side,” analyst Bourgeois said.


Second-quarter net income increased to $141.3 million, or 47 cents a share, from $103.9 million, or 35 cents a share, a year earlier.

Excluding items, earnings were 47 cents a share for the second quarter, beating expectations of 37 cents a share, according to Reuters Estimates. [ID:nWNBB8375]

Revenue rose 13 percent to $776.6 million. Analysts expected $763.4 million.

“It was a solid quarter relative to consensus, but not actually a blow-out relative to what Cognizant is normally capable of producing,” Bourgeois said.

Cognizant said its banking and financial services segment stabilized as anticipated during the quarter. The segment was up fractionally on a sequential basis and represented about 43 percent of the total revenue.

Healthcare services segment grew 7.9 percent sequentially and formed a little over a fourth of the overall revenue.

“At this rate of relative growth, healthcare could potentially rival banking and financial services at some point in the next few years as a percentage of revenue,” said Susquehanna Financial Group analyst James Friedman.

Outsourcing of health services is expected to gain momentum as the prolonged slowdown forces U.S.-based government agencies and healthcare firms to cut spiralling costs and deal with a shortage in qualified personnel. [ID:nBNG514752]

Standard & Poor’s Equity Research, however, downgraded its rating on the stock to “buy” from “strong buy” on valuation, and raised its price target by $3 to $39.

In the last six months, shares of the company have gained 58 percent. (Additional reporting by S. John Tilak in Bangalore; Editing by Ratul Ray Chaudhuri and Saumyadeb Chakrabarty)

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