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