Cognizant Technology Solutions Corp. raised its full-year revenue forecast after it reported an 11.9% increase in sales for the September quarter, boosted by higher demand for its healthcare and financial services.
The Nasdaq-listed company said on Wednesday it now expects full-year revenue to range between $10.13 billion and $10.16 billion, compared with its earlier forecast of around $10.1 billion.
Revenue rose to $2.58 billion in the three months ended 30 September from $2.31 billion a year ago. It rose 2.5% from the preceding June quarter. Net income rose 11.3% to $355.6 million from $319.6 million a year earlier.
The increase in the revenue forecast comes three months after Cognizant disappointed investors by cutting its full-year revenue growth prediction citing client-specific challenges.
Analysts at Baird Equity Research said they were “encouraged” by the increase in guidance by Cognizant. “We think that the stock is a good value, given its discount to Infosys (despite faster revenue growth) and potential for upside to consensus 2015 estimates from the TriZetto acquisition,” the analysts wrote in a note on Wednesday.
Cognizant’s slowing healthcare business, which represented about 25.4% of its total revenue, has been a problem for the company over the past few quarters. To boost its healthcare business, Cognizant struck a deal to buy TriZetto Corp. for $2.7 billion in September.
In the latest quarter, healthcare sales rose by about 9% from a year ago, slower than its previous quarters, and 1.5% sequentially.
TriZetto’s services reach 245,000 healthcare providers, representing more than half of the insured population in the US, which is a lucrative market for IT service providers.
A January report by researcher Gartner Inc. said information technology services spending by global healthcare providers will grow by 4.33% to $31.96 billion in 2014.
The “overall demand environment remains strong”, Cognizant president Gordon Coburn said in a statement on Wednesday.
According to Francisco D’Souza, chief executive officer of Cognizant, “there is a tremendous opportunity in the marketplace as the advent of new digital technologies, global economic pressures, and an evolving regulatory environment force businesses across all industries to change and adapt faster than ever before”.
According to Gartner analyst Ian Marriott, Cognizant’s performance in the September quarter could be attributed to it performing well across all geographies. He added that discretionary spending is picking up in Cognizant’s major buying markets, which are North America and Western Europe.
Last month, India’s second largest software services exporter Infosys Ltd reported a higher-than-expected increase in its second-quarter profit as it added almost 50 new clients and benefited from favourable foreign exchange fluctuations.
However, India’s largest software provider Tata Consultancy Services Ltd posted quarterly revenue that fell short of analysts’ estimates as demand for outsourcing in Latin America was weak.
In the September quarter, consulting and technology services (formerly known as application development) and outsourcing services (formerly called application management) represented 53.5% and 46.5% of revenue, respectively. Consulting and technology services increased 5.1% sequentially and 18% from a year ago.
Outsourcing services were flat sequentially and grew 5.7% from a year ago.
The management said pricing was stable during the September quarter.
During the quarter, Cognizant added about 12,300 people and ended the quarter with nearly 200,000 employees globally.
Around 43% of gross additions for the September quarter were directly from colleges, while 57% comprised experienced professionals.