In addition to missing Q1 revenue estimates while beating on EPS, Cognizant (CTSH -4.9%) has guided for Q2 revenue of $2.5B-$2.53B and EPS of $0.62 vs. a consensus of $2.54B and $0.58. Full-year guidance follows the same pattern: Revenue of at least $10.3B and EPS of at least $2.54 vs. a consensus of $10.38B and $2.36.
On the CC (transcript), Cognizant noted it faced Q1 "headwinds" in North America. Among them: Weak healthcare spending blamed on Obamacare and client leadership transitions, and "general economic and weather-related disruptions."
Segment breakdown: Financial services revenue +19.7% Y/Y to $1.02B, Healthcare +20.8% to $616M, manufacturing/retail/logistics +20% to $511.3M, everything else +18% to $271M.
Geographic breakdown: North America +16.1% to $1.84B, Europe +35% to $470.1M, rest of world +28.4% to $116M.
The EPS beat was fueled by a 90 bps Y/Y increase in op. margin to 20.8% (above Cognizant's target range of 19%-20%. Headcount rose by 7.2K Q/Q.
Aided today by a broader market selloff, Infosys (INFY -2.7%) has fallen 9% since the company hosted an investor meeting yesterday at its Bangalore HQ. Chairman Narayana Murthy stated at the event his company is likely to see 11.5% FY14 (ends March '14) revenue growth, at the low end of a prior guidance range of 11.5%-12%.
Peers Wipro (WIT -2.8%) and Cognizant (CTSH -2%) are also down over 2%. Nomura argues Infosys is contending with company-specific issues, including skill mismatches and client project ramp-downs/cancellations. It also thinks Infosys might have higher exposure to discretionary projects at retail clients.
Berenberg's Daud Khan has cut Cognizant (CTSH -2%) to Hold, citing a full valuation.
Khan, who has a $51 PT for the outsourcing giant (17.8x 2015E EPS), notes shares are trading near all-time highs and argues consensus forecasts for 2015 and later point to a "high level of expectations."
He's also worried about "unresolved issues" related to an immigration bill that restricts the activities of H-1B visa holders, and "general deflationary revenue pressures on the IT industry" (a possible reference to cloud services).
Cognizant (CTSH -5.1%) has guided for Q1 revenue of at least $2.42B and EPS of $1.18 vs. a consensus of $2.42B and $1.10. However, full-year guidance is more mixed: Cognizant expects revenue of at least $10.3B and EPS of at least $5.02 vs. a consensus of $10.38B and $4.77.
The company has also announced a 2-for-1 stock split. Shares will begin trading on a post-split basis on March 8.
5K workers were added in Q4, raising Cognizant's total headcount to 171.4K. SG&A spend +12.1% Y/Y to $450.5M, less than revenue growth of 20.9%.
Rivals Infosys (INFY -1.7%) and Wipro (WIT -1.3%) are following Cognizant lower.
Cognizant (CTSH), which currently has a global headcount of ~166K and a U.S. headcount of ~29K, says it will hire 10K more full-time U.S. workers.
Cognizant is based in New Jersey, but depends heavily on its Indian ops to handle outsourcing work. Like other outsourcing firms, the company has been on edge over a U.S. immigration bill that would limit the ability of visa holders to visit domestic client sites.
Rival Infosys was recently fined $34M over visa violations.