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Cognizant (CTSH) Q1 Earnings Beat Estimates, Revenues Up Y/Y

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Cognizant Technology Solutions CTSH reported first-quarter 2022 non-GAAP earnings of $1.08 per share, which beat the Zacks Consensus Estimate by 3.85% and improved 11.3% year over year.

Revenues of $4.8 billion matched the consensus mark. However, the top line increased 9.7% year over year. At constant currency (cc), revenues grew 10.9%. The reported figure was within management’s revenue guidance of $4.80 billion to $4.84 billion.

The growth in revenues was led by digital revenues, which accounted for 50% of revenues and increased 20% year over year.

Top-Line Details

Financial services revenues (31.7% of revenues) increased 6% year over year at cc to $1.53 billion. Growth in financial services revenues reflects an increase in digital revenues. However, clients' focus on cost optimization and the sale of the Samlink subsidiary impacted the segment revenue growth by 130 basis points.

Healthcare revenues (28.8% of revenues) increased 8.8% year over year at cc to $1.39 billion. The growth was driven by increased demand for its digital services among life science clients.

Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise

Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise
Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise

Cognizant Technology Solutions Corporation price-consensus-eps-surprise-chart | Cognizant Technology Solutions Corporation Quote

Products and Resources revenues (23.4% of revenues) climbed 14.9% year over year at cc to $1.13 billion, courtesy of strong demand from retail, consumer goods, travel and hospitality clients and a solid contribution from acquisitions.

Communications, Media and Technology revenues (16.1% of revenues) were $776 million, up 19.9% from the year-ago quarter at cc, owing to strong demand for data services among digital-native companies.

Region-wise, revenues from North America increased 8.7% year over year at cc and accounted for 74% of total revenues.

Revenues from Europe increased 15.6% from the year-ago quarter at cc and made up 18.9% of total revenues. Revenues from the U.K. and Continental Europe increased 26.4% and 6.8% year over year, at cc, respectively.

Rest of the World's revenues surged 22.1% at cc and represented 7.1% of total revenues.

Operating Detaills

Selling, general & administrative (SG&A) expenses, as a percentage of revenues, decreased 90 bps year over year to 17.9%.

Net headcount increased 14.8% year over year. Quarterly annualized attrition was 31%, down from 35% reported in the previous quarter.

Cognizant reported a non-GAAP operating margin of 15%, which decreased 20 bps year over year.

Balance Sheet

Cognizant had cash and short-term investments of $2.3 billion as of Mar 31, 2022, compared with $2.7 billion as of Dec 31, 2021.

The company has no significant debt maturities until 2023. As of Mar 31, 2022, Cognizant had a total debt of $655 million, down from $664 million as of Dec 31, 2021.

It generated $306 million in cash from operations compared with $825 million in the previous quarter.

Free cash flow was $186 million compared with $760 million reported in the prior quarter.

In first-quarter 2022, Cognizant returned $444 million through share repurchases and $143 million in dividends to shareholders.

As of Mar 31, 2022, Cognizant had $1.7 billion remaining under the current share repurchase program.

Guidance

Second-quarter 2022 revenues are expected between $4.90 billion and $4.94 billion, indicating growth of 9.3-10.3% on a cc basis.

2022 revenues are now expected to be $19.8-$20.2 billion, indicating an improvement in the range of 9% to 11% on a cc basis.

The company expects the adjusted operating margin to expand 20 basis points to 30 basis points to 15.6% to 15.7%.

Adjusted earnings for 2022 are expected to be $4.45-$4.55 per share.

Zacks Rank & Stocks to Consider

Cognizant currently carries a Zacks Rank #3 (Hold).

Cognizant’s shares are down 4.9% compared with the Zacks Computer and Technology sector’s decline of 18.9% in the year-to-date period.

Here are some better-ranked stocks worth considering in the broader sector.

Analog Devices ADI carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ADI shares have fallen 8.8% in the year-to-date period. ADI is scheduled to report second-quarter 2022 results on May 18.

Cisco Systems CSCO carries a Zacks Rank of 2.

Cisco shares have declined 20.2% in the year-to-date period. CSCO is slated to report third-quarter 2022 results on May 18.

BWX Technologies BWXT carries a Zacks Rank of 2.

BWX shares have appreciated 8.4% in the year-to-date period. BWX is scheduled to report first-quarter 2022 results on May 9.


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