REUTERS - Cognizant Technology Solutions Corp (CTSH.O) forecast 2014 revenue below analysts’ expectations, raising concerns that the IT services provider’s scorching growth may be cooling off.
Shares of Cognizant, which reported fourth-quarter results in line with analysts’ average estimates, fell as much as 7 percent in morning trading on Wednesday.
The company, which also declared a 2-for-1 stock split, said it expected revenue to grow at least 16.5 percent this year, the slowest growth since 2009 and lower than the 20.4 percent growth in 2013.
Analysts on average were expecting Cognizant to grow revenue by 17-20 percent in 2014 due to higher demand from Europe and for healthcare services.
William Blair & Co analyst Rahul Bhangare said some investors might be “a little bit disappointed and scared” that the company’s growth was slowing.
“The Street was getting a bit too aggressive. If you look at the guidance that the company has historically given at this point in the year, it is typically conservative,” Bhangare told Reuters.
Teaneck, New Jersey-based Cognizant had forecast 17 percent revenue growth for last year.
The company, which has most of its employees in India, said demand was picking up in Europe, helped by its acquisitions of France-based Equinox Consulting last year and six companies from Germany-based C1 Group in 2012.
“A lot of the performance that we saw in 2013 was driven by discretionary spending that picked up in the middle of the year, and we expect to see a continuation of that going into 2014,” CEO Francisco D‘Souza said on a conference call, which was briefly interrupted due to technical difficulties caused by a snowstorm around the U.S. East Coast.
India’s top IT services provider, Tata Consultancy Services Ltd (TCS.NS), said last month it expected sales growth to accelerate in its financial year ending March 2015.
Cognizant’s net income rose to $324.3 million, or $1.06 per share, in the fourth quarter ended December 31, from $278.8 million, or 92 cents per share, a year earlier.
Revenue rose 21 percent to $2.36 billion, helped by a 22.1 percent rise in revenue from its financial services business.
Analysts on average had expected the company to earn $1.06 per share on revenue of $2.36 billion, according to Thomson Reuters I/B/E/S.
“Some people may have been very disappointed with the Q4 (fourth-quarter) results, they were largely in line and this is not necessarily typical of Cognizant just to be in line,” analyst Bhangare said.
The company forecast revenue of at least $10.3 billion in fiscal 2014, lower than the analysts’ average estimate of $10.38 billion.
Cognizant’s shares, after dropping to a low of $89.91, were at $92.03 in late-morning trading on the Nasdaq.
Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Saumyadeb Chakrabarty, Savio D'Souza, Maju Samuel