Cognizant (CTSH) Down 2.3% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Cognizant (CTSH). Shares have lost about 2.3% in that time frame, 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 its most recent earnings report in order to get a better handle on the important catalysts.
Cognizant Q1 Earnings Beat Estimates, Revenues Down Y/Y
Cognizant Technology Solutions reported first-quarter 2024 non-GAAP earnings of $1.12 per share, which beat the Zacks Consensus Estimate by 0.9% and increased 0.9% year over year.
Revenues of $4.76 billion beat the consensus mark by 0.83%. The top line decreased 1.1% year over year and 1.2% at constant currency (cc). Acquisitions contributed 70 basis points (bps) to top-line growth.
On a trailing twelve-month basis, bookings increased 1% year over year to $25.9 billion, which represented a book-to-bill of approximately 1.3 times. Cognizant’s first-quarter bookings included eight deals that exceeded $100 million each. Of these eight deals, two were in the APJ region.
Top-Line Details
Financial services revenues (29.1% of revenues) decreased 6.2% year over year (down 6.5% at cc) to $1.385 billion. The decline was attributed to a challenging demand environment.
Health Sciences revenues (29.7% of revenues) declined 1.2% year over year (down 1.3% at cc) to $1.416 billion. Soft discretionary spending negatively impacted top-line 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) were $826 million, which increased 5.2% from the year-ago quarter (up 5.7% at cc). The segment benefited from new acquisitions and the ramp of new bookings.
Region-wise, revenues from North America decreased 0.7% year over year (down 1.7% at cc) and accounted for 74% of total revenues.
Revenues from Europe were flat year over year (down 2.4% at cc) and made up 19.7% of total revenues. Revenues from the U.K. decreased 4.6% (down 7.7% at cc). Continental Europe revenues increased 4.8% (up 3.1% at cc).
The Rest of the World revenues decreased 8.5% year over year (down 3.7% at cc) and represented 6.3% of total revenues.
Operating Details
Selling, general & administrative expenses, as a percentage of revenues, decreased 130 bps year over year to 16.1%.
Total headcount at the end of the first quarter was 344,400, down 7,100 year-over-year and 3,300 sequentially.
Voluntary attrition - Tech Services on a trailing-12-month basis declined to 13.1% from 23.1% for the period ended Mar 31, 2023.
Cognizant reported a GAAP operating margin of 14.6%, unchanged on a year-over-year basis.
The company incurred $23 million in costs related to the NextGen program, negatively impacting the GAAP operating margin by 50 bps.
Non-GAAP operating margin (adjusted for NextGen charges) of 15.1% expanded 50 bps year over year.
Balance Sheet
Cognizant had cash and short-term investments of $2.23 billion as of Mar 31, 2024 compared with $2.64 billion as of Dec 31, 2023.
As of Mar 31, 2024, the company had a total debt of $631 million, down from $639 million reported as of Dec 31, 2023.
It generated $737 million in cash from operations compared with $737 million in the previous quarter.
Free cash flow was $659 million compared with 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.
Guidance
Cognizant expects second-quarter 2024 revenues between $4.75 billion and $4.82 billion, indicating a decline of 2.9% to 1.4% (a decline of 2.5-1% on a cc basis).
In the Financial Services segment, Cognizant continues to expect the challenging macro environment to hurt spending rates, thereby negatively impacting top-line growth.
For 2024, revenues are expected to be $18.9-$19.7 billion, indicating a decline of 2.2% to growth of 1.8% on a reported basis (down 2% to growth of 2% on a cc basis).
Acquisitions are expected to contribute 100 bps.
Adjusted operating margin for 2024 is expected to be between 15.3% and 15.5%.
Adjusted earnings for 2024 are expected between $4.50 and $4.68 per share.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, Cognizant has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Cognizant has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Cognizant is part of the Zacks Business - Software Services industry. Over the past month, MSCI (MSCI), a stock from the same industry, has gained 4.7%. The company reported its results for the quarter ended March 2024 more than a month ago.
MSCI reported revenues of $679.97 million in the last reported quarter, representing a year-over-year change of +14.8%. EPS of $3.52 for the same period compares with $3.14 a year ago.
For the current quarter, MSCI is expected to post earnings of $3.55 per share, indicating a change of +8.9% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for MSCI. Also, the stock has a VGM Score of D.
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