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Why Did Cognizant Revise Its Full-Year Guidance for 2016?

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Sep. 29 2016, Published 1:24 p.m. ET

Macroeconomic concerns and Brexit

Cognizant (CTSH) has stated that discretionary spending in the banking sector continues to remain soft driven by volatile macroeconomic conditions and a low interest rate for an extended period. Cognizant expects the discretionary spending to be lower than previously anticipated for the second half of 2016. There has also been uncertainty due to the Brexit vote in the United Kingdom.

The president of Cognizant, Gordon Coburn, stated, “Economic growth forecasts and short-term to medium-term interest rate projections have generally been revised down since the vote.” He further stated that spending in the banking sector will be more cautious over the next few months.

Cognizant forecasts that the weak British pound will negatively impact revenue by approximately $40 million in the next quarter, as the currency has depreciated over 13% since the Brexit vote in June 2016. In 2Q16, the United Kingdom accounted for 9.2% of the company’s total revenues.

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Consolidation in the US healthcare industry

In early 2016, Cognizant stated that consolidation in the United States healthcare industry will impact revenue for the firm. Cognizant’s revenue rose 9.2% YoY to $3.4 billion in 2Q16 compared to a 6.9% YoY growth in its healthcare segment.

Although Cognizant is fast becoming a major player through a series of acquisitions in the digital transformation space, it faces competition from technology (QQQ) heavyweights such as Microsoft (MSFT), Amazon (AMZN), and IBM (IBM) in the cloud segment.

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