UPDATE 5-Cognizant raises 2010 outlook on robust quarter

Tue May 4, 2010 2:36pm EDT

* Q1 adj EPS $0.53 vs est $0.48

* Q1 rev beats estimates

* Increases 2010 sales, profit outlook

* Shares rise as much as 3 percent (Adds CEO interview)

By S. John Tilak

BANGALORE, May 4 (Reuters) - Cognizant Technology Solutions Corp's (CTSH.O) solid first-quarter results prompted the IT services provider to increase its outlook for the year, underscoring market share gains and the recovery in the financial services sector.

Shares of the company climbed 3 percent in early Nasdaq trade, extending their strong run, but lost their gains as the broader market fell. Since the start of the year, the stock is up 15 percent, outperforming an 8 percent rise in the S&P 500 .SPX index.

In the first quarter, revenue from financial services, its biggest segment, grew 5 percent from the previous quarter and was up 20 percent year-over-year.

"The current demand for financial services continues to be fairly broad," Chief Financial Officer Gordon Coburn said on a conference call with analysts.

Cognizant posted a forecast-beating profit for the fifth straight quarter.

For 2010, the company projected revenue growth of at least 25 percent. Some Wall Street analysts were expecting Cognizant to give a growth outlook of 22 percent.

"It is bullish that, after only one quarter into the year, Cognizant raised its 2010 revenue growth guidance from 'at least' 20 percent to 'at least' 25 percent," Sanford C. Bernstein analyst Rod Bourgeois said.

The company could achieve 31.5 percent revenue growth in 2010 in a scenario that's realistic, Bourgeois said.

The current revenue outlook implies a slowdown of growth in the second half of the year.

"We are factoring in some conservatism in the second half of this year," Chief Executive Francisco D'Souza said in an interview with Reuters.

The company has been benefiting from some pent-up demand, D'Souza said. "We think it's possible that there could be some softness in the back half of the year on the discretionary spending side."

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For CEO interview, click on [ID:nWNAB6074]

For a graphic, click on link.reuters.com/rub52k

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The results follow a strong showing by India-based rivals such as Tata Consultancy (TCS.BO), Infosys Technologies (INFY.BO) and Wipro (WIPR.BO).

Cognizant has been growing faster than its competitors -- which include U.S. firms like Accenture (ACN.N), Hewlett-Packard (HPQ.N) and IBM (IBM.N) -- and taking market share.

"We think overall results and guidance should be taken as positive," J.P. Morgan analyst Tien-tsin Huang wrote in a note to clients. "We continue to prefer Cognizant relative to peers given its premium growth."

The company plans to hire aggressively throughout the rest of the year, D'Souza said.

"Given that we've revised our guidance by anticipation is that we'll clearly continue to hire throughout the rest of this year," CEO D'Souza said in the interview.

Adjusted operating margins came in at 20.5 percent, ahead of its target operating margins of 19 to 20 percent. For the second quarter and full year, the company plans to stick to its target operating range.

First-quarter net income rose to $151.5 million, or 49 cents a share, from $113.1 million, or 38 cents a share, a year earlier. Excluding items, earnings were 53 cents a share.

Revenue rose 29 percent to $959.7 million.

Analysts expected earnings of 48 cents a share, excluding exceptional items, on revenue of $939.1 million, according to Thomson Reuters I/B/E/S.

For the year, it forecast earnings of at least $2.26 a share, excluding items, on revenue of at least $4.1 billion.

In February, the company had forecast earnings of at least $2.19 a share, excluding items, on revenue of at least $3.94 billion, or 20 percent growth.

Analysts are looking for earnings of $2.08 a share, excluding items, on revenue of $4 billion.

For the second quarter, it projected earnings of 55 cents a share, excluding items, on revenue of at least $1.02 billion.

Analysts are expecting earnings of 51 cents a share, excluding items, on revenue of $979.4 million.

Cognizant shares, which have doubled in value in the last 52 weeks and pushed the company's market cap to $15.30 billion, were down 16 cents at $51.86 in Tuesday afternoon trade. They touched a high of $53.30 earlier in the day. (Reporting by S. John Tilak; Editing by Maju Samuel, Ratul Ray Chaudhuri)

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