Light Forecast Smacks Cognizant

The weak fourth-quarter spending hit all sectors, said Coburn. In previous years, he said, clients have typically spent more than their budgets allowed, with most coming in the fourth quarter. This year, however, macroeconomic concerns may have limited that flexibility.

Despite the weaker than expected fourth-quarter forecast, Cognizant shares are still attractively valued, says Ashish Thadhani of Gilford Securities. Thadhani estimates that Cognizant's shares are valued at 23 times his projection for earnings over the next four quarter. This falls near the midpoint of range of 20 to 25 for large Indian tech services firms, including Infosys, Wipro (WIT) and Satyam (SAY).

"The market reaction today is not a fair reflection of underlying strength in business," said Thadhani. In 2008, he expects Cognizant to surpass its peers in revenue and earnings growth.

Thadhani does not personally own shares of Cognizant. Gilford Securities has not performed investment banking work for the company in the past 12 months.

Part of the selloff may stem from the language used during the conference call, says Thadhani. For instance, management did not say that they would "at least" meet their financial targets, which would imply confidence that they would safely exceed them.

Also, concerns over the company's financial services business might have surfaced because growth in revenue from that sector lagged the company's overall growth.

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