E Portfolio Review: Cognizant & Oracle

Cognizant Cashing in Profits

Cognizant Technology Solutions (CTSH) reported third-quarter revenue declined slightly to $4.2 billion with net income falling 30% to $348 million and EPS declining 29% to $0.64.

Revenue for Financial Services declined 1.5% year-over-year in both banking and insurance. Healthcare revenue grew 4.8%, driven by life sciences. Growth in biopharmaceutical clients and revenue from the acquisition of Zenith Technologies offset weakness in medical device clients. Products and Resources revenue decreased 4%, hurt by retail, consumer goods, travel, and hospitality clients that were adversely impacted by the pandemic, partially offset by double-digit constant currency growth in manufacturing, logistics, energy, and utilities. Communications, Media, and Technology revenues increased slightly with growth in communications and media more than offset by the impact from the 2019 strategic decision to exit certain content-related services. Excluding that impact, Communications, Media, and Technology grew revenue by about 9% in constant currency.

During the quarter, Cognizant generated $821 million in free cash flow, up to $200 million from last year, with the company repurchasing $700 million of its common stock and paying dividends of $120 million. The company ended the quarter with $5 billion in cash and investments, $2.4 billion in long-term debt, and $11.1 billion in shareholders’ equity on its strong balance sheet. Bookings increased 25% year-over-year leading management to raise their sales and earnings outlook for 2020 with expected revenues of $16.7 billion and adjusted EPS in the $3.63 to $3.67 range. Cognizant’s stock has provided a 135% total return over the last eight years and now appears fully valued, prompting us to trim our position.

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Oracle Substantial Buybacks

Oracle (ORCL) reported fiscal 2021 first-quarter sales increased 2% to $9.4 billion with EPS increasing 14% to $0.72. Cloud services and license support revenues, which accounted for 74% of total revenues, increased 2% to $6.9 billion. Cloud applications businesses continued growing rapidly with Fusion ERP up 33% and NetSuite ERP up 23%. Oracle now boasts 7,300 Fusion ERP customers and 23,000 NetSuite ERP customers in the Oracle Cloud.

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