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Cognizant (CTSH) Q4 Earnings and Revenues Miss Estimates

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  • CTSH

Cognizant Technology Solutions CTSH reported fourth-quarter 2020 non-GAAP earnings of 67 cents per share that missed the Zacks Consensus Estimate by 24.7% and declined 37.4% from the year-ago quarter.

Fourth-quarter revenues of $4.18 billion also missed the consensus mark by 1.4%. The figure declined 3% year over year at constant currency (cc).

Quarter Details

Segment-wise, Financial services (31.2% of revenues) declined 11.4% on a year-over-year basis at cc to $1.3 billion due to declines in both banking and insurance.

During the fourth quarter, Cognizant made an offer to settle and exit a large customer engagement in the financial services segment in Continental Europe. As a result of this offer, the company recorded a reduction in revenues of $107 million and additional expenses of $33 million in the fourth quarter of 2020, primarily related to the impairment of long-lived assets.

Healthcare (30.3% of revenues) increased 3.3% year over year at cc to $1.27 billion, driven by growth in both healthcare and life sciences. Performance in healthcare improved, driven by strength in payer clients and software license sales. Within life sciences, strength in pharmaceutical clients was partially offset by weakness in medical device 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 (22.7% of revenues) decreased 2.4% year over year at cc to $948 million due to decline in retail and consumer goods, and travel and hospitality clients affected by the coronavirus pandemic. This was partially offset by double-digit cc growth in manufacturing, logistics, energy and utilities.

Communications, Media and Technology revenues (15.8% of revenues) were $661 million, up 3.4% from the year-ago quarter at cc, driven by double-digit constant currency growth in both technology and communications and media.

Consulting & Technology services accounted for 61% of revenues. Outsourcing services contributed 39% of revenues. Additionally, 37% of Cognizant’s revenues were from fixed-price contracts.

Region-wise, revenues from North America decreased 1.1% year over year at cc and represented 72.3% of total revenues.

Revenues from Europe decreased 12.6% from the year-ago quarter at cc and accounted for 16.7% of total revenues. Rest of the World revenues rose 1.4% at cc and represented 6.7% of total revenues.

Operating Details

Selling, general & administrative (SG&A) expenses, as a percentage of revenues, expanded 510 basis points (bps) from the year-ago quarter to 20.9%.

Net headcount declined approximately 1% year over year. Quarterly annualized attrition was 19%, up 1% sequentially.

Cognizant reported non-GAAP operating margin of 12.3%, which contracted 460 bps year over year.

Balance Sheet

The company had cash and cash equivalents (and short-term investments) of $2.72 billion as of Dec 31, 2020, close to $4.57 billion as of Sep 30, 2020.

Cognizant generated $898 million in cash from operations compared with $925 million reported in the previous quarter.

Notably, the company has no significant debt maturities until 2023. As of Dec 31, 2020, the company had a total debt of $701 million, which declined 71.4% sequentially.

Free cash flow was $809 million compared with $821 million reported in the previous quarter.

In fourth-quarter 2020, the company returned over $788 million through share repurchases and $118 million in dividends to shareholders.

In February 2021, the company declared a quarterly cash dividend of $0.24 per share, a 9% increase year over year, for shareholders of record as on Feb 18, 2021. This dividend will be paid out on Feb 26, 2021.

Guidance

First-quarter 2021 revenues are expected to be in the range of $4.34-4.38 billion, indicating growth of 1%-2% on a cc basis. This assumes an estimated positive 180 basis points foreign exchange impact and a negative 85 basis points impact from the exit of certain content services.

Full-year 2021 revenues are expected to be in the range of $17.6-$18.1 billion, indicating growth of 5.5-8.5% on a cc basis.

The company expects adjusted operating margin to be in the range of 15.2%-16.2% in 2021.

Full-year 2021 adjusted earnings are expected to be in the range of $3.90-4.02 per share.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader technology sector are Perion Network PERI, Vishay Intertechnology VSH and Cohu COHU. All three stocks carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Perion and Vishay are scheduled to report their quarterly earnings on Feb 9, while Cohu will report on Feb 10.

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