Cognizant Technology Solutions Corp. CTSH is set to report first-quarter 2015 results on May 4. Last quarter, it posted a 3.39% positive earnings surprise. The company has beaten estimates in the last four quarters and has an average positive earnings surprise of 4.36%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Cognizant reported robust results in the fourth quarter of 2014 benefiting from increased IT spending across industries. The company had also provided a healthy outlook for 2015.
The company is expected to continue to benefit from strong demand for high quality, lower cost technology services. Based on its global delivery model and expanding capacity in low-cost areas in India, China, the Philippines and Latin America, the company remains well-positioned in the outsourcing market.
We believe that growing demand for offshore services beyond traditional IT outsourcing; namely, BPO (Business Process Outsourcing), KPO (Knowledge Process Outsourcing) and IT infrastructure services, bode well for the company over the long term.
In addition, 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. This will continue to boost its top line going forward.
For the first quarter of 2015, the company expects revenues of approximately $2.88 billion. Non-GAAP earnings per share are expected to be approximately 69 cents
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 #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: Earnings ESP for Cognizant is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 63 cents.
Zacks Rank: Cognizant sports a Zacks Rank #1 (Strong Buy). Though a Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stock to Consider
Here are a couple of other companies, which you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Charter Communications, Inc. CHTR with Earnings ESP of +128.57% and a Zacks Rank #3 (Hold).
Telecom Argentina S.A. TEO with Earnings ESP of +3.57% and a Zacks Rank #3.
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