Cognizant Plummets on Lower Guidance

Shares of Cognizant Technology Solutions ($CTSH) are getting hammered this morning after the company very mildly lowered its sales forecast (but reaffirmed earnings). The stock has been down as much as 17% this morning.

Cognizant actually beat its earnings forecast. For Q2, they earned 66 cents per share which was four cents better than Wall Street’s consensus. Quarterly revenues rose 16.5% to $2.52 billion, which was $10 million below forecast.

For Q3, Cognizant sees earnings of at least 63 cents per share. Wall Street had been expecting 65 cents per share, but the big miss is on revenues. For Q3, CTSH projects revenues to range between $2.55 billion and $2.58 billion. Wall Street had been expecting $2.66 billion.

Cognizant’s CEO Francisco D’Souza said, “Due to weakness at certain clients and longer than anticipated sales cycles for certain large integrated deals, we are adopting a more conservative stance for the remainder of the year and revising our 2014 revenue guidance to growth of at least 14% over the prior year, while maintaining our full year non-GAAP EPS guidance of $2.54.”

So the full-year earnings guidance stays the same, but the sales guidance is weaker. CTSH now sees revenues rising by 14%. That translates to sales of at least $10.08 billion. The previous guidance was for revenues of at least $10.3 billion, meaning growth of at least 16.5%.

The sell-off seems far greater than what the underlying news suggests. That can happen when a stock carries an unusually rich valuation (“priced for perfection”), but I don’t think that’s the case with CTSH.

Posted by on August 6th, 2014 at 10:36 am


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