Cognizant Technology Solutions Corp. (CTSH) is set to report fourth-quarter 2014 results on Feb 4. Last quarter, it posted a 1.69% positive earnings surprise. The company has posted positive earnings surprise in last four quarters, with an average earnings surprise of 4.47%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Cognizant is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.70%. This is a very meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Cognizant currently carries a Zacks Rank #2 (Buy). Note that stocks with Zacks Rank #1, 2 and 3 have a significantly higher chance of beating earnings. Meanwhile, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Cognizant’s Zacks Rank #2 and +1.70% ESP makes us confident of an earnings beat this quarter.
What is Driving the Better-than-Expected Earnings?
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 be reflected in the fourth-quarter top-line results.
Moreover, the company recently acquired the digital marketing service provider Cadient Group, which, in turn, will expand its digital marketing capabilities in the healthcare and life sciences business segment.
Additionally, Cognizant’s customer deal wins, which are expected to deliver 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.
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:
Demandware, Inc. (DWRE), with an Earnings ESP of +25.00% and a Zacks Rank #3 (Hold).
The Walt Disney Co. (DIS), with an Earnings ESP of +2.78% and a Zacks Rank #3.
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