Cognizant Q1 Earnings Beat Estimates: Will Raised View Aid Shares?

Cognizant Technology Solutions CTSH reported non-GAAP earnings of $1.23 per share in first-quarter 2025, which beat the Zacks Consensus Estimate by 3.36% and increased 9.8% year over year. 

Revenues of $5.12 billion beat the consensus mark by 0.95%. The top line increased 7.5% year over year and 8.2% at constant currency (cc). This was driven by the Belcan acquisition and strong organic growth, particularly in Health Sciences and Financial Services.

The Belcan acquisition significantly contributed to revenue growth, with approximately 400 basis points of inorganic contribution to the overall results.

On a trailing 12-month basis, bookings increased 3% year over year to $26.7 billion, which represented a book-to-bill of approximately 1.3 times. The company secured several significant contracts, including a mega deal valued at more than $500 million, contributing positively to overall growth.

Cognizant Technology Solutions Corporation Price, Consensus and EPS Surprise

Cognizant Technology Solutions Corporation price-consensus-eps-surprise-chart | Cognizant Technology Solutions Corporation Quote

Cognizant deepened its AI capabilities with over 1,400 Generative AI engagements across multiple clients.

CTSH’s shares have outperformed the Zacks Computer & Technology sector in the year-to-date period. The stock has lost 4.3%, while the broader sector has plunged 10.7%. We believe the raised guidance will help CTSH stock recover.

CTSH’s earnings beat the Zacks Consensus Estimate in all four trailing quarters, the surprise being 6.38%, on average. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

CTSH’s Top-Line Details

Financial services revenues (28.6% of revenues) increased 5.6% year over year (up 6.5% at cc) to $1.462 billion. Growth is primarily driven by improved discretionary spending and investments in cloud, data modernization, and AI.

Health Sciences revenues (30.7% of revenues) increased 10.9% year over year (up 11.4% at cc) to $1.571 billion. Growth is driven by strong demand across payer, provider, and life sciences, which offsets some discretionary spending pressures.

Products and Resources revenues (25% of revenues) increased 12.8% year over year (up 13.6% at cc) to $1.27 billion.

Communications, Media and Technology revenues (15.7% of revenues) were $804 million, which decreased 2.7% from the year-ago quarter (down 1.9% at cc). 

Region-wise, revenues from North America increased 9.5% year over year and 9.7% at cc and contributed 75.3% to total revenues.

Revenues from Europe increased 1.2% year over year (up 3% at cc) and contributed 18.6% to total revenues. Revenues from the U.K. increased 0.2% year over year (up 1% at cc). Continental Europe revenues increased 2.1% year over year (up 5% at cc).

The Rest of the World revenues increased 3.7% year over year (up 7.1% at cc) and contributed 6.1% to total revenues.

CTSH’s Operating Details

Selling, general & administrative expenses, as a percentage of revenues, contracted 60 bps year over year to 15.5%.

Total headcount at the end of the first quarter was 336,300 compared with 336,800 in the previous quarter. 

Voluntary attrition - Tech Services on a trailing 12-month basis was 15.8% compared with 15.9% in the fourth quarter of 2024 and 13.1% in the first quarter of 2024, respectively.

Cognizant reported a GAAP operating margin of 16.7%, expanding 210 bps on a year-over-year basis.

Non-GAAP operating margin (adjusted for NextGen charges) of 15.5% expanded 40 bps year over year.

CTSH’s Balance Sheet

CTSH had cash and short-term investments of $1.99 billion as of March 31, 2025, compared with $2.24 billion as of Dec. 31, 2024. 

As of March 31, 2025, the company had a total debt of $600 million, down from $908 billion reported as of Dec. 31, 2024.

The company generated $400 million in cash from operations compared with $920 million in the previous quarter.

Free cash flow was $393 million compared with $837 million reported in the prior quarter.

CTSH Initiates Strong Q2 & 2025 Guidance

Cognizant expects second-quarter 2025 revenues between $5.14 billion and $5.21 billion, indicating growth of 5.9%-7.4% and an increase of 5%-6.5% on a cc basis. 

For 2025, revenues are expected to be in the range of $20.5-$21 billion, an increase of 3.9-6.4% on a reported basis and growth of 3.5%-6% on a cc basis. 

Adjusted operating margin for 2025 is expected to be approximately 15.5% to 15.7% (an increase of 20 to 40 basis points).

Adjusted earnings per share for 2025 are expected to be between $4.98 and $5.14.

CTSH’s Zacks Rank & Stocks to Consider

CTSH currently carries a Zacks Rank #3 (Hold).

Affirm AFRM, Criteo CRTO and Paycom Software PAYC are some better-ranked stocks that investors can consider in the broader Zacks Computer & Technology sector. AFRM, CRTO and PAYC sport a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here. 

Affirm shares have lost 18.3% year to date. AFRM is set to report its third-quarter fiscal 2025 results on May 8.

Criteo shares have lost 13.9% year to date. CRTO is set to report its first-quarter 2025 results on May 2.

Paycom Software shares have gained 10.4% year to date. PAYC is set to report its first-quarter 2025 results on May 7.

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This article originally published on Zacks Investment Research (zacks.com).

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