Two More Earnings Reports

Last night, Cognizant Technology Solutions (CTSH) reported third-quarter EPS of $1.17, vs. $1.06 last year, on a 2.4% gain in revenues, or a 5.6% gain on a constant currency basis. That was a penny better than estimates for EPS of $1.16. However, the stock is down 14% today because the company lowered full-year EPS guidance to between $4.43 and $4.46, versus previous guidance of $4.51 to $4.57. CTSH attributed the lower guidance to continued attrition in the North American workforce, and some hesitation for clients to do deals in light of the changing macroeconomic environment. These factors will drive a 1% decline in revenues in the first quarter.

The company is taking several steps to improve the attrition issue and believes there will be progress by the first quarter of next year. Also notable is the company’s decision to increase its share buy back by $2.0 billion, a significant amount considering the company’s market capitalization of $27.0 billion.

The stock’s decline from over $90 to start the year to around $51 today seems excessive in light of a relatively minor cut in earnings expectations. The increased share buyback demonstrates that management believes the stock is cheap. It may take the company some time to prove the stock is on a solid growth track before shares move significantly higher. However, with the stock washed out at its current price, I believe the risk-versus-reward characteristics of the stock are very attractive. My new buy under for CTSH is $60. My target is now $70.

Fidelity National Information Services (FIS) is sharply lower after reporting third-quarter results today. The company announced EPS of $1.74, vs. $1.73 last year, on a 5% increase in organic growth, which was in line with recent guidance. However, that was lower than expectations for EPS of $1.75.

With banks taking longer to close deals and the ongoing cost pressures form inflation, FIS gave fourth-quarter EPS guidance of $1.66 to $1.72, versus expectations for $2.07. The company believes EPS for the whole year will be between $6.60 and $6.66 a share, also below estimates for $7.02.

The company wants to offset inflation with cost cuts. The company noted that cost comparisons will soon start to get easier as we reach the anniversary of when inflation pressures started to hurt the economy. While the economic factors are beyond the company’s control, I believe FIS can still earn $6.25 a share next year. The stock is very cheap and will soon bounce back. FIS is now a buy below $80. My new target is $100.