Our Thoughts: Cognizant reported in-line March qtr results, but gave June guidance below expectations and lowered annual guidance. The reason for the lowered guidance is due to a slowdown in discretionary spending in financial services and pharma. The current stock price reaction (down 18% as of this writing) is overdone, in our opinion. A murky demand backdrop is something that all companies will have to deal with and a proactive cautionary lowering of guidance is a positive, not a negative. We note the stickiness in the business: 16% revenue growth in 2009, 90% visibility in the quarter, and 60% visibility for a year. The characteristics that have made Cognizant a successful story have not gone away including: industry leading growth rates, a catalyst in the healthcare practice (33% y/y growth), and ability to execute. Even using conservative assumptions on 2012 & 2013, current stock price levels look attractive, we maintain our BUY rating.
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Joseph D. Foresi
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, BPO, IT Outsourcing, and Cybersecurity Managed Services. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides valuable insights and guidance to buyers and managed services executives. Contact him at [email protected].