Good Results From Our Tech Services Company

Cognizant Technology Solutions (CTSH) rose nearly 10% yesterday after the company reported fourth-quarter earnings and gave guidance for 2020.

Earnings per share (EPS) of $1.07 vs. $0.98 was $0.03 better than expectations, on a 3.8% rise in revenues to $4.3 billion. While pricing pressures continue to exist in the company’s health care and financial service businesses, the broad gains in its other operations powered the company’s digital offerings.

Guidance for 2020 is for constant currency revenue gains of 2.0% to 4.0% and EPS of $3.97 to $4.13, versus the $3.99 the company earned in 2019. However increased spending in growth areas will hold down profitability.

While the earnings beat and the guidance was not spectacular, the results did show that the company is on the right course. Meanwhile, CTSH’s CEO, Brian Humphries, who had just assumed the role in April, saw his plan to rejuvenate the company gain a lot of credibility. I believe that the market also feels that CTSH’s guidance could be conservative.

If EPS for the year comes in close to $4.20, my $79 target is very realistic. While CTSH is giving up some of yesterday’s gains today, I still am edging up my buy under price to $66.50 as the outlook for the company continues to improve.