Cognizant, one of the world's largest enterprise consulting firms, reports fourth-quarter earnings results before the opening bell Friday. It has raised earnings estimates by 1 cent a share since the last quarter ended while better-than-expected results from competitors Accenture (ACN) - Get Report and Infosys (INFY) - Get Reportbode well for Cognizant doing the same.
Infosys' third-quarter earnings beat and its rosy outlook is another indication the IT services industry is blossoming with higher demand. "Alongside grassroots innovation, we continue to see growing adoption of our services, bringing the power of intelligent systems, automation and software to amplify the skills and imaginations of our people," said Infosys CEO Vishal Sikka.
Cognizant has maintained or increased profit margins during its last 12 earnings beats. The company has been able to deliver its consulting services at lower cost without sacrificing its profit margins, leading to a growth in its customer base.
Shares, at close to $60, are down by a fraction of a percent so far this year and are up 8.9% for the past 52 weeks. So it's time to buy before the company extends its earnings winning streak.
For the quarter that ended December, analysts, on average, expect Cognizant to earn 78 cents a share on revenue of $3.24 billion, translating to year-over-year growth of 16% and 18%, respectively. For the full year, earnings are projected to be up 17% year over year to $3.04 a share, while revenue of $12.42 billion would mark a year-over-year increase of 21%.
These double-digit revenue and earning projections are in place despite the fierceness of the competitive landscape in the IT services industry. When adding pressures the company faces from the strong U.S. dollar that devalues its overseas sales, Cognizant's consistent performance stands out.
So with shifting its focus towards the fast-growing areas of social media, analytics and the cloud, Cognizant's revenue and profits growth rates won't be declining any time soon. Analysts project the company to grow earnings at an average annual rate of 16% in the next five years, putting the stock on a path to reach $85 in the next 18 to 24 months and deliver gains of 35%.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.