Cognizant Technology Solutions Corp. (CTSH) is set to report third quarter 2014 results on Nov 5. Last quarter, it posted a 6.90% positive surprise. The company has posted an average positive earnings surprise of 5.05% over the past four quarters.
Let’s see how things are shaping up for this announcement.
Growth Factors This Past Quarter
We believe that Cognizant, which competes with the likes of Accenture (ACN), Infosys and Wipro Ltd., remains well diversified in key verticals and emerging markets of social, mobile, analytics and cloud, which will continue to boost its top line.
Moreover, the company recently acquired digital marketing service provider Cadient Group, which, in turn will help Cognizant to expand it’s digital marketing capabilities in the healthcare and life sciences business segment. Cognizant’s partnership with Vorweck Group in the quarter is also expected to be fetch positive results for the company going forward.
Additionally, Cognizant’s customer deal wins, which are expected to deliver approximately $200 million incremental revenues in 2015, is a significant positive. Further, the expanded share buyback program reflects strong liquidity, which will further boost investors’ confidence in the near term.
Earnings Whispers?
Our proven model does not conclusively show that Cognizant is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 59 cents. Hence, the difference is of 0.00%.
Zacks Rank #2 (Buy): Though Zacks Ranks #1, 2 or 3 increase the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Another Stock to Consider
Here is one other company, which you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Actavis Plc (ACT), Earnings ESP of +0.32% and Zacks Rank #1 (Strong Buy)
The Walt Disney Co. (DIS), Earnings ESP of +3.41% and Zacks Rank #2 (Buy)
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