November 1, 2017 / 10:12 AM / in a year

Cognizant's financial revenue growth slows, shares fall

(Reuters) - IT services firm Cognizant on Wednesday failed to convincingly beat Wall Street’s earnings and revenue forecasts for the third quarter, as growth in its financial business slowed.

FILE PHOTO: The Cognizant logo is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. Picture taken October 19, 2017. REUTERS/Chris Helgren

The company’s shares, which have risen more than 8 percent since Cognizant last reported quarterly earnings, fell 5 percent in morning trading.

Cognizant Technology Solutions Corp (CTSH.O) said revenue from financial industry clients - which makes up the bulk of the company’s business - rose 3.8 percent to $1.43 billion in the quarter ended Sept. 30.

But the increase was the slowest in three quarters. The result also failed to exceed analysts’ average estimate, according to research firm FactSet.

The company’s revenue overall rose 9.1 percent to $3.77 billion. Analysts had expected $3.76 billion, according to Thomson Reuters I/B/E/S.

“The combination of significant stock ‘run’ into the print, only ‘in line’ quarterly results, as well as the typical low visibility into next year’s IT spending budget led to this morning’s 5 percent selloff,” said Wedbush Securities analyst Moshe Katri.

Cognizant has faced lower spending from big financial clients such as central banks, that are shifting their investments to digital services such as automation from legacy services, the company’s President Rajeev Mehta said on a call with analysts.

But that shift should eventually benefit Cognizant, which has also invested heavily in cloud and digital services, including cybersecurity and data analytics, company executives said.

The company has also spent big bucks on services for the healthcare industry - its other big business - mainly through acquisitions of smaller companies such as TriZetto and TMG Health.

The investments come amid uncertainty around U.S. healthcare policy, with President Donald Trump’s administration seeking to repeal and replace Obamacare.

“We view the fact that there is ongoing change in the healthcare market place as an opportunity for us to work with clients to help them address that change,” Chief Executive Francisco D’Souza said in an interview.

Cognizant said revenue from its healthcare sector business rose 9.3 percent in the latest quarter.

The company expects fourth-quarter earnings of at least 95 cents per share. Analysts were expecting 98 cents.

Its net income rose to $495 million or 84 cents per share in the third quarter, from $444 million or 73 cents per share, a year earlier.

Excluding one-time items, Cognizant earned 98 cents per share, edging past analysts’ estimates of 95 cents.

Reporting by Arjun Panchadar in Bengaluru; Editing by Bernard Orr and Sai Sachin Ravikumar

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