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Why Cognizant Technology Solutions (CTSH) Stock Is Down Today

Stocks in this article: CTSH

NEW YORK (TheStreet) -- Cognizant Technology Solutions (CTSH) was falling -6% to $46.26 Wednesday after guiding below analysts' estimates for the second quarter, and despite beating estimates in the first quarter.

For the first quarter Cognizant reported earnings of 62 cents a share, beating the Capital IQ Consensus Estimate of 59 cents a share by 3 cents. Revenue grew 19.9% from the year-ago quarter to $2.42 billion, while analysts expected $22.42 billion in revenue.

Looking forward to the second quarter the company expects EPS of 62 cents a share, below the Capital IQ Consensus Estimate of 63 cents a share. Cognizant expects revenue of $2.5 billion to $2.53 billion for the quarter. Analysts expect second-quarter revenue of $2.55 billion.

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TheStreet Ratings team rates COGNIZANT TECH SOLUTIONS as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate COGNIZANT TECH SOLUTIONS (CTSH) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 16.4%. Since the same quarter one year prior, revenues rose by 20.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • CTSH has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.17, which clearly demonstrates the ability to cover short-term cash needs.
  • COGNIZANT TECH SOLUTIONS has improved earnings per share by 15.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, COGNIZANT TECH SOLUTIONS increased its bottom line by earning $2.02 versus $1.72 in the prior year. This year, the market expects an improvement in earnings ($2.35 versus $2.02).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the IT Services industry average, but is less than that of the S&P 500. The net income increased by 16.3% when compared to the same quarter one year prior, going from $278.78 million to $324.33 million.
  • Net operating cash flow has increased to $505.87 million or 39.79% when compared to the same quarter last year. In addition, COGNIZANT TECH SOLUTIONS has also vastly surpassed the industry average cash flow growth rate of -22.12%.
  • You can view the full analysis from the report here: CTSH Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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