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Cognizant Technologies (CTSH, Buy, covered by Julio C. Quinteros Jr.)
1) 2011 trends remain firm, 2012 growth expectations remain in question -
Management reiterated their confidence in achieving 32% revenue growth guidance
for 2011; our model currently forecasts total revenue growth of 34% yoy. Consistent
with our 8/15 industry report “Peering through the summer fog, shifting to 2012
valuation with a more defensive stance”, we remain guarded on growth expectations
into 2012 with our model currently suggesting some moderation in revenue growth to
about 20% yoy.
2) Consistent with expectations, Europe remains on track; Financial Services
continues to grow, but remains biggest source of investor concern – Consistent
with our expectations, Europe (18.7% of revenues) appears to have regained its footing
into 2H2011 as the company appears to have effectively offset some recent contract
drags (e.g., completion of post-M&A integration work, etc.). Investors remain focused
on CTSH’s large financial services exposure, which at 41% remains among the highest
in our coverage group. However, based on company commentary most projects in the
financial vertical remain on track for 2011; given the upcoming capex and budgeting
cycle important for the pace of spending into 2012 especially for the more
discretionary application development revenues (50% of revenues).
3) Leading indications from headcount plans suggest sustained hiring – Consistent
with our supply driven model, we view headcount additions as a key leading indicator
and on this front it appears that CTSH remains firm in its current recruitment plans
with a focus on campus recruiting (Day 0 slots at most campus locations). Looking
ahead, the company has shifted its focus to its 2012 campus hiring efforts
for details of remaining company see link
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