Cognizant boosts forecast again after healthy quarter

Reuters News
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Posted: Aug 05, 2015 6:08 AM

By Abhirup Roy

(Reuters) - IT services provider Cognizant Technology Solutions Corp reported stronger-than-expected quarterly revenue and profit, as its business that serves the healthcare industry led the company's growth for the third quarter in a row.

Like its Indian rivals Tata Consultancy Services, and Infosys Ltd, New Jersey-based Cognizant gets the largest chunk of its revenue from financial services clients.

But its division that helps health insurers, drug companies, and other health-related businesses streamline their operations is its fastest-growing.

Cognizant said in May it expected healthcare to drive growth this year, helped by its $2.7 billion acquisition of U.S. healthcare IT services provider TriZetto Corp and the implementation of the U.S. Affordable Care Act, or Obamacare.

Shares of Cognizant, which also raised its full-year revenue and adjusted profit forecasts for the second time this year, rose as much as 9.6 percent in early trading on Wednesday.

Revenue from Cognizant's healthcare clients surged 39 percent to $897.3 million in the second quarter ended June 30, while revenue from its core financial clients rose 18.1 percent to $1.25 billion.

The company's healthcare business accounted for 29.1 percent of revenue in the quarter, compared with 25.6 percent in the same quarter of 2014.

An unprecedented wave of M&A activity among health insurers has created some uncertainty for Cognizant, however.

On one hand, merged companies may need help to integrate their systems. On the other, there are fewer companies with which to do business.

Cognizant said on Wednesday it did not expect a 7-year deal it signed with health insurer Health Net Inc last year to be implemented after the company agreed to be bought by larger rival Centene Corp.

Chief Executive Francisco D'Souza said it was unclear in the short term how other deals would affect his company.

"We have been appropriately prudent as we have given our guidance to account for that," he told Reuters.

Cognizant raised its forecast for full-year adjusted profit to at least $3.00 per share from $2.93 and its forecast for revenue to at least $12.33 billion, from $12.24 billion.

Analysts on average expected a profit $2.97 per share and revenue of $12.32 billion, according to Thomson Reuters I/B/E/S.

Revenue rose 22.6 percent to $3.09 billion. Excluding items, Cognizant earned 79 cents per share. Analysts on average had expected 73 cents per share and revenue of $3.03 billion.

Up to Tuesday's close, the stock had risen more than 20 percent in the past 12 months.

(Reporting by Abhirup Roy in Bengaluru; Editing by Don Sebastian and Ted Kerr)