Image: Cognizant Technology.
Improving productivity has become an essential part of the success of business around the world, and finding outside specialists to add the most possible value to a business operation has helped thousands of companies find new ways to make their employees more productive. Information-technology consulting and outsourcing specialist Cognizant Technology Solutions (CTSH 4.70%) has tapped into the trend toward technological innovation, helping its clients to benefit from the latest advances to become more profitable. Coming into its first-quarter financial report Monday morning, investors had high hopes that Cognizant would continue to grow at the same healthy pace it has enjoyed recently, and the IT specialist delivered good news on multiple fronts. Let's look at how Cognizant's did last quarter and why it thinks the rest of 2015 could be even brighter.
Cognizant doesn't need to outsource its earnings growth
Cognizant's first-quarter results were even more positive than optimistic investors had expected. Revenue climbed more than 20% to $2.91 billion, surpassing the 19% consensus growth rate forecast among those following the stock. Similarly, net income came in at $382.9 million, a solid gain of almost 10%, and after allowing for some one-time items, adjusted earnings of $0.71 per share were a penny better than investors had expected.
Cognizant saw strength across the board among its various business segments, but the healthcare area once again provided the biggest boost. The financial services segment remains Cognizant's largest, with revenue climbing 13% to $1.16 billion, but healthcare soared almost 43% and now makes up nearly a third of the company's overall sales. Gains in Cognizant's manufacturing, retail, and logistics segment were the weakest but still rose 7% year over year, while other sources of revenue climbed by 19%.
The strength of the North American economy continued to drive Cognizant higher, with nearly four-fifths of its sales coming from its home territory. North American revenue climbed 25%, but Cognizant's revenue gained just 1% in Europe. Cognizant has successfully grown in other areas of the world, but its Rest of World business makes up less than 5% of overall company revenue.
Image: Cognizant Technology.
Cognizant's leaders expressed satisfaction in the company's growth prospects. As CEO Francisco D'Souza explained in a press release, "The investments we have made in digital, automation, utility-based delivery models, consulting and industry-specific expertise are clearly paying off." President Gordon Coburn agreed, saying "businesses are being forced to manage growth, innovation, and scale while simultaneously managing costs. The shift to a digital enterprise is demanding greater demand for our traditional services and solutions as clients find the need to keep pace with the speed and scale of innovation."
Why 2015 is looking better for Cognizant
Cognizant showed its optimism for the future by boosting its previous earnings projections for the full year. The forecast for adjusted earnings per share of $2.93 for the 2015 was $0.02 better than its guidance last quarter, and revenue of $12.23 billion was up by $20 million. In addition, second-quarter projections for adjusted earnings of $0.72 per share on revenue of at least $3.01 billion pointed to sustained growth going forward.
Clearly, healthcare has been the standout for Cognizant lately, with its purchase of TriZetto driving growth in the segment. At the time of the acquisition, TriZetto provided software services to almost a quarter-million doctors and other healthcare providers, and it also had about 350 healthcare plan clients. With the two companies having shared many clients, the integration has seemed relatively smooth, and with the healthcare industry having largely weathered the storms of massive reform and regulation in recent years, Cognizant appears to have made the move at an ideal time.
Investors were quite happy with Cognizant's results, sending shares up 4% in pre-market trading in the first hour after the announcement. With all indications suggesting Cognizant will keep growing at its current pace, shares could push back toward their all-time high in short order.
