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Cognizant shares retreat despite solid quarter

Tue, 05/03/2011 - 12:05pm
The Associated Press

Information technology outsourcing provider Cognizant Technology Solutions Corp. said Tuesday its first-quarter profit grew sharply on strong demand from its clients.

The company's earnings topped Wall Street's expectations, but its shares dropped anyway in the heels of what's usually a seasonally slow quarter.

Janney Capital Markets analyst Joseph Foresi the stock price decline was due to the convergence of the slower start to the year meeting higher investor expectations. Fundamentally, he said, Cognizant's business is sound.

"We continue to be attracted to the company's 'secret sauce' of reinvesting everything over a specific margin level to drive growth," Foresi wrote in a note to investors.

The company reported net income of $208.3 million, or 67 cents per share, for the three months ended March 31, up 38 percent from $151.5 million, or 49 cents per share, a year earlier.

Revenue rose 43 percent to $1.37 billion from $959.7 million.

Analysts, on average, expected earnings of 64 cents per share on revenue of $1.37 billion, according to a poll by FactSet.

Jefferies analyst Joseph A. Vafi said the results showed "another steady Cognizant quarter, although the revenue line was off to a bit of a slow start to 2011." This, he added, was in line with other offshore outsourcing providers during quarter.

"With (second-quarter) revenue guidance pointing to 'at least' (6 percent quarter-over-quarter) revenue growth, it appears that project plans are coming together and (sequential) revenue could be set to re-accelerate," he added.

Cognizant forecast second-quarter earnings of 65 cents per share. It expects revenue to be at least $1.45 billion.

Analysts are expecting earnings of 66 cents per share on revenue of $1.44 billion.

The company forecast full-year revenue of $5.93 billion. That's up from its earlier outlook of $5.79 billion and slightly above analysts' expectations of $5.91 billion.

Shares of Cognizant, which is based in Teaneck, N.J., fell $5.91, or 7.2 percent, to $76.30 in afternoon trading. The stock is up less than 2 percent since the start of the year.

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