Cognizant Q3 2026: EPS up 148% on a tax comparison, but adjusted net income slipped 0.7%

Cognizant's third quarter of 2026 looks like a blowout on the GAAP line: diluted EPS (earnings per share, counting stock awards that could become shares) rose 148% to $1.39. Almost all of that is the comparison. A year ago Cognizant booked a one-time, non-cash $390 million tax charge after the US "One Big Beautiful Bill Act" changed how research costs are taxed, which cut Q3 2025 EPS by $0.80. Strip that out and the business grew modestly: revenue rose 4.6% to $5.66 billion, adjusted EPS rose 7.2% to $1.49, and adjusted net income was actually 0.7% lower than a year ago. The per-share growth came from having 7.6% fewer shares.

The quarter in numbers

Operating margin is the share of revenue left after running the business, before interest and tax. "Adjusted" figures are Cognizant's own non-GAAP measures; this quarter the only operating item excluded is $51 million of Project Leap restructuring costs (mostly severance).

Where the growth came from

Segment margins are segment operating profit divided by segment revenue, computed from the 10-Q's segment note (2025 is recast to the new cost-allocation method Cognizant adopted this year).

• Financial Services carried the quarter. It added $189 million of the $249 million total increase, led by banking clients in North America and "the ramp up of several recently won large deals". About 4 of its 12 points of growth came from reselling third-party products (hardware and software passed through to clients as part of larger deals), which is low-margin revenue. The 10-Q says the timing of those sales "negatively impacted segment operating margin in Financial Services", which fits the margin slipping to 16.0% from 16.8%.
• CMT's 10.5% growth is bought, not organic. Recently completed acquisitions added about 8.75 points to CMT's growth and third-party product sales another 6 points. Those two together are more than the segment's 10.7% constant-currency growth, which implies the existing CMT business shrank. The filing names "weakness among communications and media customers in all geographies", partly offset by its largest technology customer.
• Health Sciences and Products and Resources both shrank for another quarter, with weakness at North American healthcare clients, European life sciences clients, and retail, consumer goods, travel and hospitality clients. Both still widened their margins, which is Project Leap's cost savings at work.

By region, North America grew 5.7% (of which acquisitions added 2.5 points and third-party product sales 2 points), the UK grew 5.8% and Continental Europe fell 2.6%.

What the headline numbers hide

• The 148% EPS jump is a tax comparison. Q3 2025 net income of $274M carried the $390M one-time tax charge. Without it, last year's net income would have been about $664M, so this year's $627M is roughly 6% lower. Pre-tax income fell 2.7% to $863M, because interest expense rose to $19M from $8M (Cognizant drew $1.0 billion on its revolving credit line in Q2) and interest income fell to $16M from $25M.
• Adjusted EPS growth came entirely from buybacks. Adjusted net income was $670M versus $675M. Adjusted EPS still rose 7.2% because diluted shares fell 7.6%. Cognizant spent $270M on repurchases in Q3 (cash flow statement) and $1,877M in the first nine months, plus $465M of dividends, while also paying $1,313M for acquisitions. Cash, equivalents and short-term investments are down to $1,552M against $1,000M drawn on the revolver (refinanced in October with a new $550M term loan and $1.85B revolver maturing 2031). In plain terms, buybacks and deals are now partly funded with borrowed money.
• The margin gain leans on the rupee. About 22% of Cognizant's costs are in Indian rupees. The 10-Q says the rupee's fall against the dollar lifted operating margin by about 120 basis points (1.2 points) net of hedges versus a year ago. The adjusted margin rose only 30 basis points, so without the currency help it would have been roughly 90 basis points lower. Project Leap savings helped too, but were spent on AI investment and offset by higher pay.
• Cash conversion is weaker. Year to date, operating cash flow of $1,836M is 95% of net income ($1,925M), down from $2,025M a year ago; the 10-Q blames higher incentive-pay payouts. Days sales outstanding (how long customers take to pay, on average) rose to 89 days from 82 a year earlier and from 81 at year-end, so receivables are growing faster than revenue. Q3 alone was better: $1,004M of operating cash flow against $627M of net income.
• Low-margin revenue is a growing slice. Third-party product resale added 1.9 points of growth in the quarter and 1.7 points year to date, which lifts revenue without lifting profit by as much; the 10-Q says it pushed cost of revenue up as a share of sales.
• Restructuring estimate cut. Project Leap's total cost estimate was lowered to $180–250M (from $230–320M at Q2), with $135M incurred so far, and the expected 2026 in-year savings are now "approximately $200 million" (from $200–300M).

On balance the quarter is flattered: GAAP EPS rose 148% only because a $390M tax charge sat in last year's quarter, and adjusted EPS growth of 7.2% came from a 7.6% lower share count while adjusted net income slipped 0.7%.

Bookings and AI

Trailing-twelve-month bookings (the value of new contracts signed) rose 4% to $28.7 billion, about 1.3 times revenue, but bookings in the third quarter alone fell 7% year over year, after a 6% decline in Q2. The quarter included three deals of $100 million or more. Headcount rose to 359,900 from 349,800 a year earlier, with voluntary attrition at 12.6%.

On AI, management says over 50% of its code is now AI-assisted and it has set up an 18,000-person Google Gemini group. The 10-Q is more cautious: "demand for some services that we currently perform for our clients may be reduced, and our ability to obtain favorable pricing... may be diminished." The flat-to-down revenue in Health Sciences, Products and Resources and the non-acquired part of CMT is consistent with that risk, though the filing does not attribute the weakness to AI.

Did last time's read hold up?

Our Q2 2026 report said to watch three things in Q3: whether bookings grow again after Q2's 6% decline, whether growth outside Financial Services picks up, and how much of the margin depends on the rupee. Bookings did not recover (−7% in Q3). Growth outside Financial Services came only from acquired revenue in CMT; Health Sciences and Products and Resources still shrank. And the rupee supplied about 120 basis points of margin, more than the whole 30-point adjusted improvement. Q3 revenue of $5.664B landed above the midpoint of the $5.60–5.68B guidance.

Takeaway: Cognizant's per-share growth is being manufactured by buybacks and a weak rupee: adjusted net income fell 0.7%, organic revenue grew about 1%, and quarterly bookings fell for a second straight quarter, while debt-funded repurchases cut the share count 7.6%.

Guidance and outlook

Guidance given October 29, 2026, against the July 29 ranges:

The top of the revenue range came down by more than a point while the EPS midpoint barely moved, again pointing to share count and cost cuts rather than demand. The Q4 range implies the slowest growth of the year, even with acquired revenue still in the numbers. What to watch next quarter: whether quarterly bookings turn positive, whether CMT grows once the acquisitions are in the year-ago base, and whether the margin holds if the rupee stops falling. Cognizant also flags that a revised India–Mauritius tax treaty, in force since August 2026, could raise its effective tax rate, since its Indian unit is owned through Mauritius.