Cognizant plans to boost its digital services business

Cognizant said it will grow its digital transformation services business from 23 percent of revenue today via organic growth and acquisitions.

Cognizant's digital transformation services now account for 23 percent of the company's total sales and the plan for 2017 is to scale that business.

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CEO Francisco D'Souza said on a conference call that the company's plan to shift to digital services was constructed in recent months. "The time is right for us to accelerate the shift to digital services and solutions to meet the growing demands from our clients to transform their business models," he said.

With its digital services plan, Cognizant is looking to do what many rivals want to--migrate up the IT services food chain. Cognizant said it will scale its digital services in its industries and geographies by retooling its workforce and acquiring companies for intellectual property and expertise. The company will also aim to become more efficient.

Cognizant added that most of its digital acquisitions will be strategic tuck-in deals.

However, D'Souza also noted that Cognizant needs to help clients automate traditional IT to fund digital efforts. In other words, Cognizant needs to keep its core outsourcing business healthy. "Having deep knowledge of our clients core systems is it significant advantage as we work with them to build new digital capabilities," he said.

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The company reported a mixed fourth quarter. Cognizant reported fourth quarter earnings of 68 cents a share on revenue of $3.46 billion, up 7.1 percent from a year ago. Non-GAAP earnings for the fourth quarter was 87 cents a share.

Wall Street was looking for fourth quarter earnings of 86 cents a share on revenue of $3.49 billion.

For 2016, Cognizant reported earnings of $2.55 a share on revenue of $13.49 billion, up 8.6 percent.

As for the outlook, Cognizant said non-GAAP earnings will be 83 cents a share in the first quarter on revenue of $3.51 billion to $3.55 billion. Cognizant projected 2017 revenue of $14.56 billion to $14.84 billion with non-GAAP earnings of at least $3.63.

On the shareholder side of the equation, Cognizant also it will return $3.4 billion to shareholders over the next two years with share buybacks and dividends. The company also reached a deal with Elliott Management to add board members to evaluate strategic plans.