A Look Into Cognizant’s Results

Cognizant Technology Solutions, a major IT provider headquartered in the city Teaneck in New Jersey, has posted better than expected results during the second quarter of this year.

It’s net income increased by 86.5 percent to $470 million, though analysts attribute much of this rise to the lower income tax levels it paid last year. Last year, the Indian subsidiary of Cognizant repurchased shares valued at $2.8 billion from shareholders and this led the company to take a $190 million expense last year.

Even without this, the company earned 93 cents per share and this is more than the analysts’ prediction of 90 cents per share. The overall revenue also rose to $3.67 billion, slightly more than the analysts’ expectations of $3.66 billion. This revenue accounts for a nine percent increase when compared to last year.

In addition, the company said that the revenue for the next quarter will be anywhere between $3.73 to $3.78 billion, and this is fairly close to the analysts’ prediction of $3.76 billion.

Despite such positive results, the company’s shares rose only slightly in the stock market. This is mainly because Cognizant lowered its 2017 revenue and it estimates the revenue between $14.7 billion and $14.84 billion. Though analysts were expecting $14.76 billion, the fact that it lowered the revenue is a cause of concern for investors.

This brings up the next question – why Cognizant lowered the revenue when it has posted such impressive results?

The culprit is the U.S healthcare industry. Uncertainty surrounding Trump’s policies and the scrapping of Obamacare has put a lot of pressure on this industry and it has cut back spending in a big way. As a result, It service providers that offer software and maintenance support to these healthcare companies are affected.

Since Cognizant gets a major chunk of its revenue from healthcare and financial services companies, it is forced to lower its forecast as it expects healthcare companies to put in tighter controls for spending.

For this quarter though, revenue from the healthcare sector grew by 9.5 percent to around $1.05 billion, but this growth rate may not be sustainable over the coming year due to the confusions about healthcare policy.

Otherwise, Cognizant seems to be doing well and is poised to take a big share in newer technologies like IoT.

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