By Senad Karaahmetovic
Cognizant (NASDAQ:CTSH) stock is trading over 11% lower today following the company’s weak Q3 report and guidance.
Cognizant reported Q3 EPS of $1.17 on revenue of $4.86 billion. This compares to the analyst consensus that was expecting an EPS of $1.16 on revenue of $5 billion.
For its fourth quarter, Cognizant said it expected revenue to increase between 2% and 3% in constant currency, a bigger-than-expected slowdown as analysts were expecting revenues to rise 8.1%.
As a result, the company slashed its full-year forecast so that it now expects growth between 4.5% and 7%, lower compared to the prior 8.5-9.5% range. The adjusted EPS is now expected to be between $4.43 and $4.46, down from $4.51-4.57, and lower than the $4.53 consensus.
At least three brokerage firms downgraded CTHS shares after earnings, including RBC analysts. They moved to the sidelines and cut the price target to $66 per share, from the prior $78.
“Although CTSH is working hard to mitigate elevated attrition rates, which albeit did improve sequentially, attrition continues to weigh on fulfillment and bookings growth, especially given CTSH's lack of onshore talent relative to client demand resulting in pressure on its North America billable headcount. In addition, its two largest verticals, Financial Services and Health Sciences, which combined accounted for ~60% of Q3/22 revenues, are experiencing incremental macro pressures,” the analysts said in a client note.
BMO analysts slashed the rating to Market Perform, from Outperform, as they believe the 2023 year will be “a challenging year broadly in IT services and attrition/fulfillment challenges have hurt bookings in FY22, further pressuring FY23 trajectory.”
“Given all the uncertainty especially with the macro, we are stepping to the sidelines at this juncture. While the stock is inexpensive, we do not envision a near-term catalyst. We plan to re-visit our stance during 1HCY23 as we have a clearer picture on the economy and bookings,” they wrote in a note.
William Blair analysts also downgraded Cognizant shares.