It has been about a month since the last earnings report for Cognizant (CTSH). Shares have lost about 4.1% in that time frame, outperforming 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 most recent earnings report in order to get a better handle on the important drivers.
Cognizant Technology Solutions reported non-GAAP earnings of $1.21 per share in fourth-quarter 2024, which beat the Zacks Consensus Estimate by 8.04% and increased 2.5% year over year.
Revenues of $5.08 billion beat the consensus mark by 0.49%. The top line increased 6.8% year over year and 6.7% at constant currency (cc). This was driven by strong demand for digital transformation services, AI integration, and sector-specific offerings.Acquisitions contributed 450 basis points (bps) to top-line growth.
On a trailing 12-month basis, bookings increased 3% year over year to $27.1 billion, which represented a book-to-bill of approximately 1.4 times. The company secured 10 large deals during the quarter, up from seven in the previous year, bringing the total to 29 large deals for the year.
Cognizant deepened its AI capabilities with over 1,200 Generative AI engagements across multiple clients.
Financial services revenues (28.2% of revenues) increased 2.9% year over year (up 2.8% at cc) to $1.435 billion. The growth is primarily driven by improved discretionary spending and strong execution.
Health Sciences revenues (30.3% of revenues) increased 10.4% year over year (up 10.4% at cc) to $1.541 billion. The growth is driven by strong offerings and recent large deal wins. The TriZetto platform, which processes two-thirds of U.S. healthcare claims, remained a key driver as payers and providers sought digital modernization.
Cognizant’s comprehensive service suite for health sciences clients, including patient engagement platforms and AI-driven claims processing, boosted growth.
Products and Resources revenues (25.5% of revenues) increased 11.3% year over year (up 11.3% at cc) to $1.29 billion.
Communications, Media and Technology revenues (16% of revenues) were $811 million, which increased 0.9% from the year-ago quarter (up 0.4% at cc).
Region-wise, revenues from North America increased 8.3% year over year and 8.4% at cc and contributed 75.2% to total revenues.
Revenues from Europe increased 2.3% year over year (up 1.3% at cc) and contributed 18.5% to total revenues. Revenues from the U.K. declined 0.7% year over year (down 3.1% at cc). Continental Europe revenues increased 5.1% year over year (up 5.6% at cc).
The Rest of the World revenues increased 3.5% year over year (up 3.9% at cc) and contributed 6.3% to total revenues.
Selling, general & administrative expenses, as a percentage of revenues, expanded 10 bps year over year to 16.6%.
Total headcount at the end of the fourth quarter was 336,800 compared with 340,100 in the previous quarter.
Voluntary attrition - Tech Services on a trailing-12-month basis increased to 15.9% from 13.8% for the period ended Dec. 31, 2023.
Cognizant reported a GAAP operating margin of 14.8%, contracting 40 bps on a year-over-year basis.
The company incurred $49 million in costs related to the NextGen program, negatively impacting the GAAP operating margin by 90 bps.
Non-GAAP operating margin (adjusted for NextGen charges) of 15.7% contracted 30 bps year over year.
CTSH had cash and short-term investments of $2.24 billion as of Dec. 31, 2024, compared with $2.02 billion as of Sept. 30, 2024.
As of Dec. 31, 2024, the company had a total debt of $908 million, down from $1.2 billion reported as of Sept. 30, 2024.
The company generated $920 million in cash from operations compared with $847 million in the previous quarter.
Free cash flow was $837 million compared with $791 million reported in the prior quarter.
Cognizant expects first-quarter 2025 revenues between $5 billion and $5.1 billion, indicating growth of 5.6%-7.1% and an increase of 6.5 on a cc basis.
For 2025, revenues are expected to be in the range of $20.3-$20.8 billion, indicating an increase of 2.6-5.1% on a reported basis and growth of 3.5 on a cc basis.
Adjusted operating margin for 2025 is expected to be approximately 15.5% to 15.7% (an increase of 20 to 40 basis points).
Adjusted earnings per share for 2025 are expected to be between $4.90 and $5.06.
In the past month, investors have witnessed an upward trend in estimates revision.
Currently, Cognizant has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Cognizant has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Cognizant belongs to the Zacks Computers - IT Services industry. Another stock from the same industry, Roper Technologies (ROP), has gained 0.8% over the past month. More than a month has passed since the company reported results for the quarter ended December 2024.
Roper Technologies reported revenues of $1.88 billion in the last reported quarter, representing a year-over-year change of +16.3%. EPS of $4.81 for the same period compares with $4.37 a year ago.
Roper Technologies is expected to post earnings of $4.73 per share for the current quarter, representing a year-over-year change of +7.3%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
Roper Technologies has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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