Cognizant (CTSH) Down 2.3% Since Last Earnings Report: Can It Recover?

A month has passed since Cognizant’s (CTSH) last earnings report. Shares have lost about 2.3% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cognizant due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

Cognizant’s first-quarter earnings beat estimates, revenues declined YoY

Cognizant Technology Solutions reported first-quarter 2024 non-GAAP earnings of $1.12 per share, up 0.9% from the Zacks Consensus Estimate and up 0.9% year-over-year.

Revenues of $4.76 billion beat the consensus estimate by 0.83%. The bottom line was down 1.1% year over year and 1.2% at constant currency (cc). Acquisitions contributed 70 basis points (bps) to revenue growth.

On a trailing-twelve-month basis, bookings increased 1% year-over-year to $25.9 billion, representing approximately a 1.3x increase in bookings-to-bill. Cognizant closed eight deals worth more than $100 million each in the first quarter. Of the eight transactions, two took place in the APJ region.

Top-shelf details

Financial services revenues (29.1% of revenues) declined 6.2% year-over-year (down 6.5% at cc) to $1.385 billion. The decline was attributed to a difficult demand environment.

Health Sciences revenue (29.7% of revenue) decreased 1.2% year-over-year (down 1.3% on a cc basis) to $1.416 billion. Soft discretionary spending negatively impacted revenue growth.

Products and resources revenues (23.8% of revenues) increased 1.3% year-over-year (up 0.9% at cc) to $1.13 billion.

Communications, media and technology revenues (17.4% of revenues) amounted to USD 826 million, up 5.2% compared to the same quarter last year (up 5.7% at the cc level). The segment benefited from new acquisitions and an increase in new bookings.

Regionally, North America revenues decreased 0.7% year-over-year (down 1.7% cc) and accounted for 74% of total revenues.

Revenues from Europe were unchanged year-on-year (down 2.4% at cc level) and accounted for 19.7% of total revenues. UK revenues decreased by 4.6% (down 7.7% at CC level). Revenues in continental Europe increased by 4.8% (up 3.1% at the cc level).

Rest of World revenues decreased 8.5% year-over-year (down 3.7% at cc level) and represented 6.3% of total revenues.

Operational details

Selling, general and administrative expenses as a percentage of revenue decreased 130 basis points year-over-year to 16.1%.

Total employment at the end of the first quarter was 344,400, down 7,100 year-on-year and 3,300 sequentially.

Voluntary attrition – trailing 12-month technology services decreased to 13.1% from 23.1% in the period ended March 31, 2023.

Cognizant reported GAAP operating margin of 14.6%, unchanged year over year.
The company incurred $23 million in costs related to the NextGen program, which negatively impacted GAAP operating margin by 50 basis points.

Non-GAAP operating margin (adjusted for NextGen fees) of 15.1% increased 50 basis points year over year.

The story continues

Balance

Cognizant had cash and short-term investments of $2.23 billion as of March 31, 2024, compared to $2.64 billion as of December 31, 2023.

As of March 31, 2024, the company had total debt of $631 million, compared to $639 million reported as of December 31, 2023.

It generated $737 million in cash from operations, up from $737 million in the prior quarter.

Free cash flow was $659 million compared to free cash flow of $755 million reported in the prior quarter.

In the first quarter of 2024, the company returned $284 million through share repurchases.

Conductivity

Cognizant expects Q2 2024 revenue to be between $4.75 billion and $4.82 billion, down 2.9% to 1.4% (down 2.5% to 1% on a per cc basis).

In the Financial Services segment, Cognizant continues to expect that the challenging macro environment will have an unfavorable impact on expense ratios, thereby negatively impacting revenue growth.

2024 revenues are expected to be $18.9-19.7 billion, representing a decline of 2.2% to an increase of 1.8% on a reported basis (a decline of 2% to an increase of 2% on a reported basis). cm3).

The acquisitions are expected to generate 100 basis points.

Adjusted operating margin for 2024 is expected to be between 15.3% and 15.5%.

Adjusted earnings for 2024 are expected to be between $4.50 and $4.68 per share.

How have estimates changed since then?

It turns out that the fresh estimates have not changed over the last month.

VGM results

Currently, Cognizant has a solid B Growth Score, a rating with the same momentum score. Following exactly the same trajectory, the stock is rated B for value, putting it in the second quintile within this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Cognizant carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Cognizant is part of the Zacks Business – Software Services industry. Over the past month, MSCI (MSCI), a stock in the same industry, has gained 4.7%. More than a month ago, the company published its results for the quarter ended March 2024.

MSCI reported revenue of $679.97 million in the most recent quarter, representing a year-over-year change of +14.8%. EPS of $3.52 in the same period compared to $3.14 a year earlier.

For the current quarter, MSCI is expected to report earnings per share of $3.55, representing a change of +8.9% from the prior-year quarter. The Zacks Consensus Estimate has remained unchanged over the past 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for MSCI. The stock also has a VGM Rating of D.

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