Infosys Stock Pares Gains After Hitting Record High As Analysts Up Targets

Shares of Infosys Ltd. touched an all-time high after analysts raised their target prices for India’s second-largest software services exporter on expanding margin and improving revenue guidance for the ongoing fiscal. The stock, however, soon pared all its gains.

The company’s net profit rose 13.72% sequentially to Rs 4,858 crore in the quarter ended September. Its margin expanded to 25.3% from 22.7%.

Infosys now expects revenue to grow 2-3% in FY21, higher than 0-2% forecast earlier. It has also raised operating margin guidance to 23-24% from 21-23%. Besides, it resumed salary increments and promotions from 2021—a practice it had put on hold due to uncertainties amid Covid-19.

While that prompted analysts to maintain their bullish investment recommendation on the stock, few expect the earnings upgrade cycle to pause for the sector.

Of the 47 analysts tracking Infosys, 41 have a ‘buy’ rating, four suggest a ‘hold’ and the rest recommends a ‘sell’. The average of Bloomberg consensus 12-month target price is 0.2%. The stock gained as much as 4.3% to Rs 1,186 apiece in early trade on Thursday, but slipped to trade 0.6% lower as of 9:50 a.m.

Here’s what brokerages have to say…

Macquarie

• Maintains ‘outperform’ rating, raises target price to Rs 1,410 from Rs 1,140 apiece
• Revision due to revenue growth visibility in medium term
• Large deal wins to aid revenue growth acceleration
• EBIT margin estimated to remain in the 23-24% band in FY22-23
• Raises FY21-23 EPS estimates by about 4.5%
• One of the top picks in the Indian large-cap IT space and a marquee buy idea
• Catalysts: Pick-up in deal wins, strong execution on revenue, margins

HSBC

• Maintains ‘buy’, hikes target price to Rs 1,295 from Rs 1,085 apiece
• Infosys reported a strong second quarter; full-year guidance was upgraded
• Industry tailwinds and market share gains to drive Infosys’ outperformance in FY22/23
• Expects a pause in earnings upgrade cycle for the sector in near term
• Return on capital employed gap to TCS now down to about 15% from 25% peak in 2019-20
• Raises EPS estimates by 4.0% and 3.7% for FY21 and FY22

UBS

• Maintains ‘neutral’ rating with a target price of Rs 1,020 apiece
• Margin guidance should catalyse earnings upside
• Revision in guidance should narrow the valuation discount to TCS

JPMorgan

• Maintains ‘overweight’, raises target price to Rs 1,300 from Rs 1,180 apiece
• Operating leverage, offshore shift drive margin recoup
• Emerged as the winner from accelerating adoption of cloud migration

Jefferies

• Maintains ‘buy’ with target price of Rs 1,140 apiece
• Results ahead of expectations
• Revenue growth broad-based, with digital continuing to drive growth
• Large deal total contract value during second quarter at $3.15 billion was the highest ever
• Employee rewards reflect changing fortunes

Investec

• Maintains ‘buy’, hikes target price to Rs 1,225 from Rs 950 apiece
• Broad-based revenue performance by vertical
• Margin performance was led by one-off benefits and higher utilisation
• Guidance implies a relatively soft second half
• Incremental earnings upgrades are unlikely going forward