Cognizant Technology Solutions CTSH reported non-GAAP earnings of $1.21 per share in fourth-quarter 2024, which beat the Zacks Consensus Estimate by 8.04% and increased 2.5% year over year.

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Revenues of $5.08 billion beat the consensus mark by 0.49%. The top line increased 6.8% year over year and 6.7% at constant currency (cc). This was driven by strong demand for digital transformation services, AI integration, and sector-specific offerings.Acquisitions contributed 450 basis points (bps) to top-line growth.

On a trailing 12-month basis, bookings increased 3% year over year to $27.1 billion, which represented a book-to-bill of approximately 1.4 times. The company secured 10 large deals during the quarter, up from seven in the previous year, bringing the total to 29 large deals for the year.

Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise

Cognizant Technology Solutions Corporation price-consensus-eps-surprise-chart | Cognizant Technology Solutions Corporation Quote

Cognizant deepened its AI capabilities with over 1,200 Generative AI engagements across multiple clients.

CTSH’s shares have underperformed the Zacks Computer & Technology sector in the trailing six-month period. The stock has gained 15.1%, while the broader sector has appreciated 18.5%. We believe the raised guidance will help CTSH stock recover.

CTSH’s Top-Line Details

Financial services revenues (28.2% of revenues) increased 2.9% year over year (up 2.8% at cc) to $1.435 billion. The growth is primarily driven by improved discretionary spending and strong execution.

Health Sciences revenues (30.3% of revenues) increased 10.4% year over year (up 10.4% at cc) to $1.541 billion. The growth is driven by strong offerings and recent large deal wins. The TriZetto platform, which processes two-thirds of U.S. healthcare claims, remained a key driver as payers and providers sought digital modernization.

Cognizant’s comprehensive service suite for health sciences clients, including patient engagement platforms and AI-driven claims processing, boosted growth.

Products and Resources revenues (25.5% of revenues) increased 11.3% year over year (up 11.3% at cc) to $1.29 billion.

Communications, Media and Technology revenues (16% of revenues) were $811 million, which increased 0.9% from the year-ago quarter (up 0.4% at cc).

Region-wise, revenues from North America increased 8.3% year over year and 8.4% at cc and contributed 75.2% to total revenues.

Revenues from Europe increased 2.3% year over year (up 1.3% at cc) and contributed 18.5% to total revenues. Revenues from the U.K. declined 0.7% year over year (down 3.1% at cc). Continental Europe revenues increased 5.1% year over year (up 5.6% at cc).

The Rest of the World revenues increased 3.5% year over year (up 3.9% at cc) and contributed 6.3% to total revenues.

CTSH’s Operating Details

Selling, general & administrative expenses, as a percentage of revenues, expanded 10 bps year over year to 16.6%.

Total headcount at the end of the fourth quarter was 336,800 compared with 340,100 in the previous quarter.

Voluntary attrition - Tech Services on a trailing-12-month basis increased to 15.9% from 13.8% for the period ended Dec. 31, 2023.

Cognizant reported a GAAP operating margin of 14.8%, contracting 40 bps on a year-over-year basis.

The company incurred $49 million in costs related to the NextGen program, negatively impacting the GAAP operating margin by 90 bps.

Non-GAAP operating margin (adjusted for NextGen charges) of 15.7% contracted 30 bps year over year.

CTSH’s Balance Sheet

CTSH had cash and short-term investments of $2.24 billion as of Dec. 31, 2024, compared with $2.02 billion as of Sept. 30, 2024.

As of Dec. 31, 2024, the company had a total debt of $908 million, down from $1.2 billion reported as of Sept. 30, 2024.

The company generated $920 million in cash from operations compared with $847 million in the previous quarter.

Free cash flow was $837 million compared with $791 million reported in the prior quarter.

CTSH Initiates Strong 2025 Guidance

Cognizant expects first-quarter 2025 revenues between $5 billion and $5.1 billion, indicating growth of 5.6%-7.1% and an increase of 6.5%-8% on a cc basis.

For 2025, revenues are expected to be in the range of $20.3-$20.8 billion, indicating an increase of 2.6-5.1% on a reported basis and growth of 3.5%-6% on a cc basis.

Adjusted operating margin for 2025 is expected to be approximately 15.5% to 15.7% (an increase of 20 to 40 basis points).

Adjusted earnings per share for 2025 are expected to be between $4.90 and $5.06.

CTSH’s Zacks Rank & Stocks to Consider

CTSH currently carries a Zacks Rank #3 (Hold).

Akamai Technologies AKAM, Bel Fuse BELFB and Arista Network ANET are some better-ranked stocks that investors can consider in the broader sector. While ANET sports Zacks Rank #1 (Strong Buy), AKAM and BELFB carry Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Akami Technologies shares have gained 9.3% in the trailing six-month period. AKAM is set to report its fourth-quarter 2024 results on Feb. 20.

Bel Fuse shares have gained 30.7% in the trailing six-month period. BELFB is set to report its fourth-quarter 2024 results on Feb. 18.

Arista Network shares have gained 43% in the trailing six-month period. ANET is set to report its fourth-quarter 2024 results on Feb. 18.

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