What Infosys' Big Beat Means For Cognizant Shareholders

| About: Cognizant Technology (CTSH)

Prior to Infosys' (NASDAQ:INFY) blowout earnings a couple of weeks ago [see call transcript], most sellsiders were expecting the company to report tepid earnings and revenue based on assumptions (proven wrong by INFY) that the company would see slower than expected ramp-ups, Hurricane Sandy would have adversely impacted revenue growth and increased bench strength. When Infosys reported numbers on January 11, the numbers were a positive surprise on every metric. For FQ3 (ended Dec 31, 2012), Infosys reported revenues of $1.91 billion, up 6.35% QoQ and up 5.83% YoY, beating Street estimates of $1.85 billion. Earnings per share came in at $0.76/share versus Street expectations of $0.72/share.

For the full year ending March 31, 2013, Infosys guided revenues to at least $7.45 billion and earnings of at least $2.97/share versus Street estimates of $7.32 billion and $2.95/share. Infosys shares were up almost 20% on the day after their beat.

All that is well and good and a done deal now. However, for those of you that missed the earnings pop in Infosys, all is not lost. You have another chance with quasi-Indian outsourcing firm, Cognizant Technologies (NASDAQ:CTSH), which is set to report results for its December quarter this week. The company will report on February 7, 2013 before the market opens for regular trading. Current Street consensus is for earnings of $0.91/share on revenues of $1.95 billion for the December quarter. For the March quarter, the sellside expects earnings of $0.93/share on revenues of an even $2 billion. For full year 2013, current Street estimates are earnings of $4/share on revenues of $8.58 billion. Over the last four quarters, Cognizant has beat estimates three times and met estimates once.

Since Infosys reported numbers a couple of weeks ago, shares of the company are up over 15% while Cognizant Technologies shares have been relatively flat to up 1.5% or so.

Recently President Barack Obama said that the US needs to overhaul its healthcare system to include an additional 30 million citizens and that states need to build online exchanges that will link the insured, new and existing to their insurance companies via the internet. President Obama has demanded that the individual states and insurance companies set up online exchanges that will allow consumers to evaluate various insurance coverage plans and then choose the service provider that best suits their needs. This is an area of huge opportunity for Cognizant Technologies and one where it has a commanding lead over the Indian It/outsourcing companies like Infosys, Mahindra Satyam et al. As the BFSI (banking, financial services and insurance) vertical is currently faced with some challenges due to global economic uncertainty, health care will more than pick up the slack. Bloomberg recently stated that spending on health care could exceed funds deployed for Social Security and defense by 2014-2015.

Look for strong numbers from Cognizant which could lead to at least a 10% gain in the shares post earnings. My price target is north of $85 per share post results.

Disclosure: I am long CTSH, INFY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: long ctsh call options