PREVIEW-Cognizant to beat estimates, confirm recovery signs

* What: Cognizant Q3 results

* When: Nov. 3

* Expectations high, market looks for strong beat

* Strong Q4 outlook seen

By S. John Tilak

BANGALORE, Nov 2 (Reuters) - Cognizant Technology Solutions
Corp (CTSH.O: Quote, Profile, Research) is expected to post strong third-quarter results
and its fourth-quarter outlook is likely to beat Wall Street
expectations, reinforcing the view that a recovery is in
progress.

The IT services provider is expected to gain from a rebound
in financial services, the company's biggest segment that
contributed 43 percent to its second-quarter revenue.

Cognizant's quarterly report on Nov. 3 will follow a strong
display by its India-based rivals such as Tata Consultancy
Services Ltd (TCS.BO: Quote, Profile, Research), Infosys Technologies Ltd (INFY.BO: Quote, Profile, Research) and
Wipro (WIPR.BO: Quote, Profile, Research). [ID:nBOM412587]

But expectations from investors are running high and a beat
won't be enough to cheer them.

"A beat is already reflected on the stock. It needs to be a
healthy beat," Kaufman Bros analyst Karl Keirstead said.

The stock has climbed 28 percent in the last three months
and is up 114 percent since the beginning of the year.

Investors will also be looking for signs of recovery in the
financial services market, and the strength of recovery, if
any.

"They should show increasing signs that demand is picking
up," Keirstead said. "If they do beat by a healthy amount, it
will probably have to be because of the financial services
vertical ramp even faster than investors were expecting."
Cognizant, which also competes with larger players like
Accenture (ACN.N: Quote, Profile, Research), Hewlett-Packard (HPQ.N: Quote, Profile, Research) and IBM (IBM.N: Quote, Profile, Research),
beat profit expectations in the last two quarters.

The results will stress that "the worst is over, but we are
still not out of the woods," Global Equities Research analyst
Trip Chowdhry said.

The weak point in the results might be the margins.
Analysts expect gross margins to decline both sequentially and
year-over-year.

Chowdhry said he will be looking for stability in the
company's margins. In the second quarter, Cognizant posted
gross margins of 44.2 percent, a 0.5 percent decline.

STRONG Q4 OUTLOOK EXPECTED

Analysts are certain the company will give a strong
fourth-quarter outlook, which is expected to set the agenda for
the next year.

"We believe investors will use fourth-quarter guidance to
form expectations on Cognizant's fiscal year 2010 growth," J.P.
Morgan analyst Tien-tsin Huang said in a note to clients.

"We expect consensus fiscal year 2009 and fiscal year 2010
revenue estimates for Cognizant will likely move up after the
report," Huang added.

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Q3 2009E Q3 2008 Pct change

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EPS $0.41 $0.38 +8 Rev

$805.1 mln 734.7 mln +10 Gross margins
43.88 pct 44.75 -2
(Editing by Pradeep Kurup)