Cognizant Technology Solutions Corp. CTSH is set to report second-quarter 2015 results on Aug 5. Last quarter, it posted a 4.76% positive earnings surprise. The company has beaten estimates in the last four quarters and has an average positive earnings surprise of 4.19%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Cognizant reported robust results in the first quarter of 2015 benefiting from increased IT spending in the health care and financial services industry. The company also increased its earnings and revenues guidance for 2015.
Cognizant has been benefiting from its healthy exposure to fast-growing verticals like Financial Services and Healthcare. The company has accumulated deep industry expertise and knowledge of these domains through partnerships with top firms. These partnerships have enabled it to deliver more value to clients and capitalize on new opportunities.
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, 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.
However, the company can be severely impacted by slowdown in regions like North America (78.7% of total revenue last quarter) or unfavorable changes in industries like financial services (40% of total revenue last quarter). Also, given the breakneck pace of evolution in the technology space, the company has to constantly fend off competition from peers like Accenture ACN, Infosys INFY and Wipro Ltd.
For the second quarter of 2015, the company expects revenues of approximately $3.01 billion. Non-GAAP earnings per share are expected to be more than 72 cents.
Earnings Whispers?
Our proven model does not conclusively show that Cognizant is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESPand 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 67 cents.
Zacks Rank: Cognizant has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Another Stock to Consider
Here is another stock which you may want to consider as our model shows that it has the right combination of elements to post an earnings beat this quarter:
Ashford Hospitality Trust, Inc. AHT has an Earnings ESP of +4.35% and a Zacks Rank #1 (Strong Buy).
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