PREVIEW-Strong Cognizant 1st-qtr seen, all eyes on 2010 view

* What: First-quarter results

* When: May 4, Tuesday, before market opens

* Investors see if company will boost 2010 outlook

* Shares have more than doubled over the past year

By S. John Tilak

BANGALORE, May 3 (BestGrowthStock) – Cognizant Technology Solutions
Corp (CTSH.O: ) is expected to post strong first-quarter results
and possibly increase its outlook for the year, driven by
robust demand for outsourcing services.

Investors are looking past the quarter to see how much the
IT services provider will grow in 2010.

Some analysts say the company could guide for at least 22
percent revenue growth in 2010. In February, Cognizant gave a
2010 growth outlook of 20 percent, an estimate most analysts
view as conservative. In 2009, it grew 16 percent.

The company, which offers business process outsourcing and
consulting services, is seen as one of the key beneficiaries of
the sharply rebounding $60 billion Indian outsourcing market.

Most of the employees and development centers of Teaneck,
New Jersey-based Cognizant are based in India.

“We expect above-consensus results from Cognizant, with
growth boosted particularly by segments outside of application
outsourcing,” Sanford C. Bernstein analyst Rod Bourgeois said.

“Cognizant is likely seeing very strong growth in segments
such as enterprise resource planning services, infrastructure
outsourcing, and business intelligence.”

The results will follow a strong showing by India-based
rivals such as Tata Consultancy (TCS.BO: ), Infosys Technologies
(INFY.BO: ) and Wipro (WIPR.BO: ).

Cognizant is expected to do better, given it has been
growing faster than rivals and taking market share. Its
competitors include U.S. firms like Accenture (ACN.N: ),
Hewlett-Packard (HPQ.N: ) and IBM (IBM.N: ).

Shares of Cognizant have more than doubled in the last 52
weeks, outperforming the broader S&P 500 (.SPX: ) index, which is
up 35 percent in the same period. Valued at about $15.30
billion, the stock was trading at $51.22 Monday on Nasdaq.

The company trades at a multiple of 24 times its forward
earnings — a 51 percent premium to the sector average,
according to StarMine data.

A larger exposure to financial services, which has been
leading the market recovery, than its Indian peers will help
Cognizant, Kaufman Bros analyst Karl Keirstead said.

During the downturn, Cognizant’s shares were hit on
concerns over its sharp financial services exposure, but over
the past two quarters the company has been feeding positive
commentary on demand from the sector.

A smaller exposure to Europe, where the IT spending rebound
is taking shape slowly, and the appreciating Indian rupee will
be to its advantage, Keirstead said.

“Cognizant should still be able to outgrow its larger peers
in 2010,” he said.

For the first quarter, the company is expected to post a 26
percent growth in revenue and earnings, according to Thomson
Reuters I/B/E/S.

Cognizant is seen benefiting from a recovery in technology
spending, faster-than-market growth and robust demand in North
America, which accounts for about 79 percent of its revenue.

Global IT services spending is seen rising 5.7 percent to
$821 billion in 2010, market researcher Gartner has forecast.
This compares with a 4 percent drop in 2009.

Q1 2010E Q1 2009 Pct
change ——————————————- EPS

$0.48 $0.38 +26 Revenue
(million) $939.1 $745.9 +26 Gross
margins (pct) 43.46 43.73 -0.6

Investment Analysis

(Reporting by S. John Tilak; Editing by Jarshad Kakkrakandy)

PREVIEW-Strong Cognizant 1st-qtr seen, all eyes on 2010 view