November 5, 2014 / 11:14 AM / 3 years ago

Cognizant forecasts revenue above estimates as IT spending rises

(Reuters) - IT services provider Cognizant Technology Solutions Corp forecast current-quarter revenue above analysts’ estimates due to higher spending by financial services and healthcare clients.

Shares of the company, which also reported higher-than-expected revenue for the third quarter, rose as much as 7.8 percent on Wednesday.

Chief Financial Officer Karen McLoughlin told Reuters that spending by clients in pharmaceutical and life sciences industries was recovering after several quarters of slow growth.

The company’s healthcare clients include insurers, hospitals and some state-run exchanges set up under the U.S. Affordable Care Act, also known as Obamacare.

Growth in the business, which accounts for about 25 percent of total revenue, slowed significantly to 9.2 percent in the third quarter from 24 percent a year earlier and 19 percent in the second quarter.

The year-earlier quarter reflected high demand for the company’s services from U.S. healthcare exchanges to handle initial enrollments for Obamacare.

Cognizant said in September that it was acquiring healthcare IT services provider TriZetto Corp for $2.7 billion, its biggest deal ever, to boost its healthcare business.

Cognizant forecast on Wednesday revenue of $2.61 billion-$2.64 billion for the fourth quarter.

Analysts on average were expecting revenue of $2.58 billion, according to Thomson Reuters I/B/E/S.

“The overall demand environment remains strong,” Cognizant President Gordon Coburn said on a conference call.

The company’s net income rose to $355.6 million, or 58 cents per share, in the third quarter ended Sept. 30 from $319.6 million, or 53 cents per share, a year earlier, due to higher spending by North American and European clients.

North America accounts for about three-quarters of the company’s total revenue, while Europe makes up for about 18 percent.

Total revenue rose about 12 percent to $2.58 billion, above the average analyst estimate of $2.57 billion.

Rival Tata Consultancy Services Ltd reported a lower-than expected quarterly profit last month, while Infosys Ltd’s quarterly profit beat the average analyst estimate.

Cognizant’s shares were up 7.8 percent at $52.28 in afternoon trading on the Nasdaq.

Additional reporting by Lehar Maan in Bangalore; Editing by Kirti Pandey

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