Cognizant Continues to Weather its Potential Risks Well

Aug. 7.06 | About: Cognizant Technology (CTSH)

Outsourcing services provider Cognizant Technology Solutions Corp. (NASDAQ:CTSH) said last Wednesday second-quarter profit jumped 53 percent from last year, driven by a significant increase in sales. The company also raised their guidance for the full year and issued third-quarter guidance that exceeded consensus estimates.

Back on May 23, we said:

Further, regardless of how much competition there is or how many companies are starting their own IT offices in India, there is no indication that growth will slow any time soon. The Motley Fool author notes that his own IT offshoring business is booked solid through 2009. Some investments are about moats and leverage. Cognizant is about a massive secular shift that will take several years to complete. As this shift winds down it will be important to reconsider the sustainability of Cognizant’s business. In the meantime, there are more pressing concerns.

Issues like management succession, which they settled. According to the AP story:

Separately, the company said it came up with a management succession plan, under which current president and chief executive Lakshmi Narayanan will step down from his current roles and become vice chairman of the board, effective Jan. 1, 2007. He will be replaced by chief operating officer Francisco D’Souza. Chief Financial Officer Gordon Coburn will take on the additional role of chief operating officer.

Issues like how to keep growing when the future growth depends on hiring dozens of new employees every day. Or the political risks inherent to operating in an emerging economy.

So far, Cognizant has weathered all of these risks well.

CTSH 1-yr chart:

CTSH 1-yr chart