February 4, 2015 / 11:19 AM / 3 years ago

Cognizant forecasts higher revenue growth as healthcare spending rises

(Reuters) - Cognizant Technology Solutions Corp’s fourth-quarter revenue rose more than expected and the IT services provider forecast a pick up in annual revenue growth as healthcare and financial services clients in North America boost spending.

The company shares rose as much as 7 percent to a record high of $58.94 on Wednesday.

Like its Indian rivals Tata Consultancy Services, and Infosys Ltd, Cognizant also gets the largest chunk of its revenue from financial services clients.

But the company’s healthcare business, which accounts for about a quarter of revenue, was the fastest growing in the year ended December.

After slowing in the third quarter, growth in the business picked up in the fourth quarter, helping assuage concerns about spending by clients such as insurers, hospitals and state-run exchanges set up under the U.S. Affordable Care Act, or Obamacare.

That helped the company’s total revenue rise a better-than-expected 16.4 percent to $2.74 billion in the quarter.

Robert W. Baird & Co analyst David Koning said organic constant currency revenue growth was about 14 percent, the company’s strongest acceleration in over four years.

“The core business in healthcare seems to be getting better again and we heard competitors also say financial services and healthcare are doing quite well,” Koning said. “So, I think that’s what’s setting up a really nice growth pattern.”

Cognizant, which gets nearly 80 percent of revenue from North America but has most of its employees in India, forecast 2015 revenue growth of at least 19 percent.

That was higher than the 16.1 percent achieved in 2014, the lowest in the Teaneck, New Jersey-based company’s 20-year history.

“We think there are significant opportunities in the healthcare space in the next several years, particularly here in the United States with the continued implementation of the Affordable Care Act,” Chief Financial Officer Karen McLoughlin told Reuters.

Revenue in Cognizant’s healthcare business grew 26 percent in the fourth quarter, boosted by the $2.7 billion acquisition of TriZetto Corp in the quarter.

Excluding TriZetto, the company’s biggest deal ever, healthcare revenue grew 15.2 percent, which was still the highest among its major businesses.

Profit rose 11.9 percent to $362.9 million, or 59 cents per share. Excluding items, the company earned 67 cents per share, beating analysts estimates of 65 cents per share.

Through Tuesday, Cognizant’s stock had risen 10 percent since Aug. 6 when the company warned of slowing revenue growth.

Editing by Savio D'Souza

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