The increase in market share eventually translates into improvements in earnings per share. As is shown in the picture below, Cognizant Technology Solutions Corp (NASDAQ:CTSH) has easily outperformed Infosys Ltd ADR (NYSE:INFY), which has reported declining earnings per share in its two previous quarters. In the corresponding period, Cognizant has reported more than 17.5% EPS growth.
Cognizant hasn’t been as profitable as Infosys, but it has been growing at an impressive pace and has delivered much better earnings growth. Due to its lower margins, the business is putting good numbers in those markets where others are struggling, such as Europe. Here, Cognizant Technology Solutions Corp (NASDAQ:CTSH)’s sales in the previous quarter rose 23% from the same quarter last year. When others in the IT outsourcing industry, as indicated by Accenture Plc (NYSE:ACN), are expecting little top-line growth, Cognizant is looking to outperform the market and has reiterated its full year targets. Therefore, I believe that Cognizant is a safer and far more lucrative investment option than Infosys.
Cognizant Technology Solutions Corp (NASDAQ:CTSH)’s shares dropped significantly in April due to a disappointing outlook from Infosys Ltd ADR (NYSE:INFY), but that was (and still is) an opportunity to buy the shares. I believe that Cognizant will continue with its robust growth. In the last week of May, analysts at Janney Montgomery Scott and Deutsche Bank have reiterated their Buy ratings with price targets of $90 and $92 respectively. Clearly, big things are expected from Cognizant, and analysts’ price targets show significant upside from the current price of $66.58.
Although the addition of Murthy is a step in the right direction, unlike some of the other analysts, I am not overly optimistic. It is still too early to start predicting a turnaround. Investors’ hopes are higher than ever, but the conditions won’t be the same for Murthy as they were back in 2006 when Infosys was a smaller player on the global scale. Back in 2006, the company had 53,000 employees and recorded annual sales of $2 billion; now it has a 157,000 strong workforce and sales of nearly $7 billion.
Secondly, executives such as Shibulal and Gopalakrishnan, who have been the center of the shareholders’ criticism, are still at the helm. With Murthi, there will be three executives at the top position, creating even more confusion. I hope Murthi will be the one calling the shots.
Moreover, the company’s original business model of doing back-end work is facing obsolescence, and Infosys Ltd ADR (NYSE:INFY) isn’t moving quickly enough into the higher margin consultancy operation. The time and effort the company spent on acquiring Lodestone last year has highlighted its slow decision-making process. I believe a large part of Infosys’s problems are associated with management’s risk-averse approach. Unfortunately, the leadership has preferred to sit on large cash reserves instead of distributing them among shareholders or investing in acquisitions to force inorganic growth.
Sarfaraz Khan has no position in any stocks mentioned. The Motley Fool recommends Accenture.
The article Cognizant Rises as Infosys Looks for a Messiah originally appeared on Fool.com.
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