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Cognizant Moves Forward With Solid Momentum, New CEO

By Dan Caplinger – Updated Apr 24, 2019 at 11:48AM

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The IT consultant is still making steady progress.

Coming up with a technology strategy has been essential for just about every business in the world, and Cognizant Technology Solutions (CTSH -1.73%) has worked hard to offer itself up as an expert in key areas like cloud computing and data analytics in order to help its clients make the most of their technological capabilities. Yet as technology continues to advance, Cognizant itself also has to keep moving forward in order to make sure it can sustain its leadership role in the IT industry.

Coming into Wednesday's fourth-quarter financial report, Cognizant investors were hoping that the tech giant would be able to deliver the usual modest growth in revenue and earnings. Cognizant did somewhat better than that, and it also announced a transition plan that will bring in new talent in an effort to drive future performance in the years to come.

Glass wall with Cognizant Accelerator logo on it.

Image source: Cognizant.

Cognizant finishes 2018 strong

Cognizant's fourth-quarter results showed strength coming into the new year. Sales were higher by nearly 8% to $4.13 billion, inching above the 7% growth rate that most of those following the stock were expecting to see. Net income of $648 million reversed a modest loss in the year-earlier quarter, and after accounting for some extraordinary items, non-GAAP earnings of $1.13 per share topped the consensus forecast among investors for $1.06 per share.

As we've seen recently, Cognizant's business segment performance showed continuations of well-established trends. The company's smallest units saw the most substantial revenue growth, including an 18% rise in the communications, media, and technology group that accelerated from its growth rate in the third quarter. The products and resources segment posted a 14% rise in sales, also outpacing what it managed to produce earlier in the year.

However, more sluggish performance came from Cognizant's larger businesses. Growth for the healthcare segment slowed to just 7%, falling from near-double-digit percentage levels in the third quarter. The leading financial services segment saw growth slow to just 1.7%, decelerating further from earlier in the year.

Cognizant got some much-needed strength from Europe. Sales in the key North American core area rose 6.7% from year-earlier levels, but that paled in comparison to the 17% growth Cognizant saw in Europe. Even the U.K., which has seen pressure related to Brexit weigh on results, posted a 15% gain. Only a 1.6% drop in the small rest-of-world segment held back Cognizant's overall growth worldwide.

CEO Francisco D'Souza was pleased with how things went. "Cognizant executed well in 2018," D'Souza said, "diversifying our revenue base and client roster, and investing to build distinctive leadership in six advanced digital capabilities." The CEO noted that its digital-focused strategy matches up with what its clients need, and Cognizant will continue to pursue opportunities to drive digital growth.

Check out the latest Cognizant earnings call transcript.

What's next for Cognizant?

Cognizant has high hopes that it can keep using its overall strategic vision to find new areas to tap. In D'Souza's words, "With a disciplined plan for executing our digital strategy, we've set Cognizant up for the next stage of sustainable strong growth and value creation."

Yet it won't be D'Souza who's in charge of implementing that strategy. Effective April 1, Brian Humphries will come in to assume the CEO role, with D'Souza staying on to help with the transition through June 30. Humphries comes from Vodafone (VOD -0.09%) Business, and he will bring a new perspective to Cognizant's operations that could lead to new innovation. The departure of Rajeev Mehta as company president seems to indicate some disappointment that he wasn't selected as the new CEO, despite positive comments from D'Souza about Mehta's departure.

Cognizant's outlook was generally favorable. The company sees revenue growth of 7.5% to 8.5% in the first quarter, leading to full-year 2019 top-line growth of 7% to 9%. Cognizant also set earnings expectations for the year of at least $4.40 per share on an adjusted basis, as a combination of margin-improving moves and good business conditions should contribute to a solid performance for the company in 2019.

Cognizant shareholders were happy with the results, and the stock picked up nearly 5% as of midday on Wednesday following the announcement. Advances in technology will never stop, and as long as companies need to keep up with the latest, Cognizant will have an opportunity to deliver the services that clients have come to expect from the tech consulting giant.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Cognizant Technology Solutions. The Motley Fool has a disclosure policy.

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Cognizant Technology Solutions Corporation Stock Quote
Cognizant Technology Solutions Corporation
$57.44 (-1.73%) $-1.01
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