US woes and sluggish fin, health arms may mute Cognizant Q4 nos

Mumbai | Bengaluru: Cognizant is likely to report muted fourth quarter numbers with a conservative outlook for 2020, analysts said, as the New Jersey-headquartered IT services provider braces for a tougher business environment in the key United States market and persistent sluggishness in its main healthcare and financial services verticals.

The company is expected to report fourth quarter results by early next month. The momentum for large deals has been slower than expected through 2019, analysts said, adding that it is unlikely to have improved in the seasonally weak fourth quarter.

A year-on-year revenue growth of 4% to 4.5% is expected in the financial services vertical, while healthcare spending could be affected by uncertainty in regulation in the US election year.

“Financial services is clearly committed to increasing DIY (do-it-yourself) with the banks expanding their GICs and building out capacity in country. In healthcare payer, we see the market constrained by uncertainties around the direction of US health care and potential changes driven by the election cycle,” said Peter Bendor-Samuel, CEO of IT consulting firm Everest Group.

Analysts also expect deal-signings to slow as the United States, the largest market for financial services and which contributes 85% to Cognizant’s overall revenue, ahead of the US Presidential elections in November. It would take time for the company to offset growth slowdown in the US with other regions, said analysts.

“We know the company is already expanding in Europe and investing significantly in Apac, particularly ANZ region. However, it would take some time for these regions to provide even a competitive revenue share compared to the US region,” said Mrinal Rai, principal analyst at technology consulting firm Information Services Group.

Growth may also slow as the company begins to transform under CEO Brian Humphries. The company will shed as many as 7,000 jobs to cut costs. “There are some initiatives to drive profitability, but these may come at the expense of overall revenue growth. Most investors we talk to expect to see greater profitability from cuts at the expense of revenue growth,” Ray Wang, principal analyst and founder of Silicon Valleybased research firm Constellation Research, said.