Tata Consultancy Services Ltd. – the country's largest firm by market value – just got its most bullish price target yet.
Shares of the software service provider could reach Rs 2,490 apiece, Morgan Stanley wrote in a note to clients this morning. That's the highest price target on the stock so far, according to Bloomberg, and indicates an upside potential of nearly 40 percent from Tuesday's closing price. The 12-month consensus price target of the 49 analysts tracked by Bloomberg is Rs 1,647.8.
The brokerage cited improved macro environment and strong execution as key near-term growth drivers for the country's largest software service provider. "With the global growth, which is likely to remain strong, the U.S. economy doing well, broader and deeper digital adoption, and the rupee depreciating, we see several tailwinds for the stock.”
The target price upgrade comes at a time when the company said it will consider a proposal to buy back shares at its board meeting to be held on June 15.
We believe TCS is well positioned to benefit from possible increases in IT budgets, long-standing relationships with customers and strong investments in the business.Morgan Stanley
The brokerage house also raised TCS’ earnings per share estimates by 4 percent for the current financial year, and 5 percent for next year, citing rupee depreciation.
We expect EBIT margins to rise to 26-28 percent aided by a pickup in growth (especially within the banking, financial services and retail verticals) and rupee depreciating 4 percent against the dollar.Morgan Stanley
The stock is currently trading over 8 percent above the Bloomberg consensus one-year target price. It returned over 30 percent so far this year compared to 5.1 percent jump on the S&P BSE Sensex, making it the best performer on the index.
About 38 percent of the analysts tracked by Bloomberg have a ‘Buy’ rating on the stock, while 44.9 percent have a ‘Hold’ rating and 16.3 percent of them have a ‘Sell’ call.
Shares of TCS rose as much as 2.8 percent to Rs 1,830 apiece in today’s trade. The stock was among the best performer on both Sensex and the NSE Nifty 50 Index. The scrip trades at 23.5 times its estimated forward earnings per share and 18.3 times for two-year historical average.