Lately, IT services have been the talk of the town. The International Data Corporation (IDC) estimated that in 2011, the market was more than $855 billion and estimates that it can increase at a compound annual growth rate of 4.6% through 2018. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is an IT services company that is rising with the market.
Cognizant Technology Solutions Corp (NASDAQ:CTSH) provides consulting, business process outsourcing services, and information technology, in order to aid the world’s leading companies build their businesses. It has over 50 delivery centers worldwide, with its headquarters in Teaneck, New Jersey. Cognizant Technology Solutions Corp (NASDAQ:CTSH) has a market cap of $22 billion and I think earnings will continue to grow as long as there is still a strong demand for its broad range of services.
Savvy numbers
Cognizant Technology Solutions Corp (NASDAQ:CTSH)’s revenue rose 3.7% sequentially and 18.1% year-over-year. Cognizant intends on utilizing its $1.5 billion in cash for expansion of current operations and potential acquisitions of related businesses. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is a cash rich business and doesn’t require the use of debt in its day to day operations.
The Board of Directors increased the stock repurchase program from $1 billion to $1.5 billion and extended the term. As of May 8, 2013, it repurchased $940 million of its shares under the old authorization.
Cognizant Technology Solutions Corp (NASDAQ:CTSH)’s rivals, Wipro Limited (ADR) (NYSE:WIT) and Infosys Ltd ADR (NYSE:INFY) are having a prosperous time too. In the first quarter Wipro Limited (ADR) (NYSE:WIT)’s revenue increased 5% year-over-year. But, Wipro’s forward outlook is dismal, which is kind of surprising considering the industry is expected to rise by 12% to 14% according to the National Association of Software and Services Companies (NASSCOM). Still, Wipro Limited (ADR) (NYSE:WIT) increased its net income, income from continuing operations, and its IT services revenue in the first quarter.
Infosys Ltd ADR (NYSE:INFY) missed analyst’s revenue estimates, but it posted quarter-over-quarter growth and year-over-year growth. But its profitability has wavered when compared to Cognizant. Infosys Ltd ADR (NYSE:INFY) has dropped 2.2% in its profit margin, while at the same time, Cognizant has maintained its margin around 14%.
Kid in a candy store
Cognizant has increased its penetration with existing customers, including strategic clients. It finished the quarter with roughly 1,000 active clients, compared to roughly 805 last year, and increased the number of strategic clients by seven, bringing the total number to 221. Cognizant describes a strategic client as one offering the potential to generate a minimum of $5 million to $50 million or more in annual revenue.
On February 28, 2013, Cognizant finished the acquisition of six companies. The transactions strengthened its local presence in Switzerland and Germany and expanded its expertise in enterprise application services and high-end testing services. Cognizant has also invested in developing the Future of Work called SMAC (Social, Mobile, Analytics and Cloud), which is one combined stack, where each function permits another to amplify its effect. Cognizant has expanded its service offerings, which enabled it to cross-sell new services and meet the rapidly growing demand for complex large-scale outsourcing solutions.
Peers in search of progress
Cognizant is not the only company looking to add to its operations as Wipro Limited (ADR) (NYSE:WIT) has struck a multi-year contract with an APAC-based telecom service provider. The contract calls for Wipro to render big data based analytics solutions. It has also secured a big, multi-year contract from a leading provider of analytics solutions to Healthcare, CPG, and Retail Industries.
Wipro Limited (ADR) (NYSE:WIT) has also secured a huge multi-year contract in the infrastructure management space from a big global bank and it has secured a multi-year commitment with one of the United Kingdoms’s largest providers of general and life insurance. Wipro Limited (ADR) (NYSE:WIT) has also secured a contract from Saudi Arabian Airlines, which includes IT Infrastructure and Application Managed Services, as well as a strategic transformational consulting commitment.
CareFirst BlueCross BlueShield granted Infosys Ltd ADR (NYSE:INFY) a multi-year managed services deal to produce a cost effective delivery model and to drive proficiencies in application support. Infosys Ltd ADR (NYSE:INFY) proclaimed a partnership with a company named IPsoft to provide an autonomics-based managed IT service to its clients.
Since the last quarter, Infosys secured more than 15 commitments across Cloud services and Big Data. Infosys Ltd ADR (NYSE:INFY) engaged in more than 25 new commitments across different areas and industries like customer engagement, enterprise efficiency, and field services. So yes, this industry seems big enough for all the major players.
Foolish bottom line
Each one of these IT services companies has room for growth, but of the three, Cognizant seems to be the best investment. Cognizant has grown year-over-year and should continue to grow along with the market. As long as the IT services industry expands, so will a company like Cognizant; perhaps its time you took a closer look for yourself.
Gayron Wainwright has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Gayron is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article IT Companies You Shouldn’t Miss originally appeared on Fool.com is written by Gayron Wainwright.
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