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* What: Q3 results
* When: Monday, before market opens
* Results to follow strong numbers from TCS, Infosys
* Shares at all-time high levels
By S. John Tilak
BANGALORE, Oct 29 Cognizant Technology Solutions Corp (CTSH.O) should post strong quarterly results and raise its 2010 outlook for the third straight quarter, as it gains market share and benefits from a rebound in financial services.
Analysts want to see if the economic recovery has sustained technology spending on financial services, which contributed 43 percent to Cognizant's revenue in the second quarter. Investors will focus more on whether the New Jersey-based IT services provider -- which competes with India's Tata Consultancy Services (TCS.BO) and Infosys Technologies (INFY.BO) as well as U.S. rivals Accenture (ACN.N), Hewlett-Packard (HPQ.N) and IBM (IBM.N) -- beats estimates by a big margin, especially on revenue, as they look for double-digit sequential growth.
While Wall Street analysts on average predict sequential revenue growth of 6 percent, investors expect 12-15 percent, according to some analysts.
The company faces a stiff comparison on two counts. Its second quarter was a record, and the September quarter is historically strong for its Indian rivals.
TCS posted 12 percent sequential growth based on U.S. GAAP, while Infosys saw quarter-on-quarter growth of 10.2 percent.
"Cognizant's expectations have been heightened by strong growth results recently reported by Infosys and TCS," Sanford C. Bernstein analyst Rod Bourgeois said, adding sequential growth of 10 percent is feasible for Cognizant. In the second quarter, Cognizant posted sequential revenue growth of 15 percent, outperforming its peers, and recording $1 billion in a quarter for the first time.
The stock is up 22 percent since its second-quarter results, topping a 5 percent rise in the broader S&P 500 index .SPX.
RAISING THE BAR
The general sentiment is that a beat alone is not enough to push up the shares, but the sell-side is increasingly conscious of the bar being raised again and again.
"I'm seeing investors increasingly concerned about higher expectations facing Cognizant," said Bourgeois.
In the last four quarters, Cognizant shares have risen an average of 6 percent when it reported results. The company has beaten profit estimates for the last six straight quarters.
"They'll do enough to keep the stock in their current range," said UBS analyst Jason Kupferberg.
The stock, valued at around $20 billion, this week touched $68.87, its highest since it went public in 1998.
The market will also be looking for signs of demand and growth next year -- though Cognizant typically begins budget talks with clients in November and unveils its full-year outlook only in February.
"With budgets for next year still not set, visibility on 2011 top-line growth is going to be low. But we like Cognizant's momentum," said Bryan Keane, analyst at Credit Suisse.
With revenue expected to grow about 36 percent this year, according to analysts, growth is likely to settle at more moderate levels in 2011.
Analysts predict 2011 revenue growth of 23 percent, according to Thomson Reuters I/B/E/S.
Q3 2010 Q3 2009 Pct change
------------------------------- EPS $0.60 $0.45 +33 Revenue (bln $) 1.18 0.85 +38 Gross margins 42.44 44.28 -4 (Reporting by S. John Tilak in Bangalore, Editing by Ian Geoghegan)