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Profit Surges at Cognizant Tech

The company beats estimates and guides higher.
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Updated from 1:22 p.m. EST

Outsourcing heavyweight

Cognizant Technology Solutions


posted impressive fourth-quarter earnings on Thursday, beating EPS estimates by 2 cents and solidly surpassing revenue expectations.

The company's net income nearly doubled to $57.7 million, or 39 cents a share, from $30.6 million, or 21 cents a share, a year earlier.

Excluding a one-time tax benefit of about $12.4 million, the Indian outsourcing firm's net income was $45.3 million, or 31 cents a share. Thomson First Call consensus estimates pegged the company for 29 cents a share.

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Revenue totaled $256.9 million, up from the $253.9 million expected by Wall Street. Full-year revenue totaled $885.8 million, up 51% from 2004.

"Cognizant's strong performance during the fourth quarter concludes a year of exceptional overall performance for the company, driving us past an annual revenue run rate of $1 billion and firmly placing us in the top tier of the offshore IT services industry," Lakshmi Narayan, president and CEO of Cognizant, said in a statement.

The company went on a hiring blitz this year, adding 9,000 employees, bringing the company's head count to more than 24,300 people at the end of 2005. At the end of 2006, the company said it will have more than 34,500 employees.

The company also provided guidance for the current quarter higher than analysts anticipated. For the first quarter, Cognizant said it will make 32 cents a share compared with analysts' estimates of 30 cents a share. Revenue is anticipated to be at least $275 million, above the analyst consensus $265 million.

For the full year, the company said it will bring in at least $1.43 a share on sales of $1.26 billion at a minimum, better than estimates of $1.38 a share on sales of $1.24 billion.

"We continue to view CTSH as a core long-term holding in the Indian IT services sector and as one of the best positioned companies exploiting the offshore model," wrote Goldman Sachs analyst Julio Quinteros in a research note on Thursday. "Importantly, with the CY06 outlook now in focus we believe that today's results should help the stock break out from its recent trading range of $49-$51."

Indeed, the news did just that. The stock was up $4.98, nearly 10 %, in recent trading to $55.13.

Goldman Sachs retained its in-line/attractive rating for the company. Goldman expects to do investment-banking business with Cognizant.