Stocks & Funds

Infosys Stock Wavers as Revenue Guidance Drops, Yet Analysts Uphold ‘Buy’ Rating on Infosys

Infosys shares decline

On Friday, Infosys’ shares drove down by over 8%, not far off from the 9% reduction in ADRs on Thursday. The company’s decision to lower their revenue targets for the current fiscal year effectively reduces any additional risk to the stock. It is thought that sales will remain close to current levels for the three quarters ahead, especially taking into consideration a lacklustre performance from two key business avenues – financial services and retail – regardless of matching market forecasts on the whole.

Due to weak discretionary spending across mortgage, investment banking, asset management, and payments, the company will still struggle to convert deals into revenues. Jefferies expects constant currency revenues to grow by 3% year-on-year in FY24, implying a CQGR (compounded quarterly growth rate) of 0.2-1.8% for the remaining three quarters.

The stock fell by more than 8% in morning trade, but analysts believe it will continue to be a buy. American Depository Receipts of Infosys dropped by 9% after the company announced its Q1 results. Jefferies estimates Infosys stock will trade at 19x FY25 EPS after the fall, which is in line with its 10-year average and 13% below its five-year average, according to the company. Despite the disappointment caused by the material guidance cut, Kotak has also maintained a ‘Buy’ rating for the stock.

It’s surprising for a company at the top of its game and leading growth charts to suddenly cut revenue growth guidance in 1QFY24, according to Kotak Institutional Equities. Despite the fact that there are no metrics that indicate loss of competitiveness or wallet share, it warrants closer scrutiny.

Its revenue forecast for FY2024-26 has been lowered by 2-3%, and its forecast for FY2024E revenue growth has been lowered by 3.3% from 4.9%. Additionally, EPS estimates were cut by 2-3% due to lower growth and marginally reduced margins, offset by changes in INR/USD assumptions. Like other leading brokerage firms, it has maintained a “Buy” rating, valuing the company at an unchanged multiple of 20 times June 2025 EPS. Infosys shares remain valued at 1470.

Dalal Street tumbled in early morning trade following Infosys’s reduction in revenue growth guidance for FY24. The company said on Thursday that it expects revenues to grow between 1%-3.5% instead of 4-7%.

Infosys may be playing it safe by cutting its revenue guidance given that the quarterly numbers do not bear any red flags based on the environment in its key markets. Historically, the company has underpromised then surpassed its own guidance later in the year. However, for the last two quarters, the market has been caught off guard.

Stock downgraded from neutral to reduce by Nomura-infosys

Based on revised revenue estimates for FY24-25, Nomura’s Global Market research estimates that earnings will decrease by approximately 3-4%, resulting in lower earnings per share (EPS) estimates, which have dropped by 5-6%. The stock has been downgraded from ‘neutral’ to ‘reduce’ as a result of these adjustments.

A revised target price of 1,210 (previously 1,260) is set at 18 times the forecasted EPS for FY25. A stock’s trading value currently stands at approximately 21.7 times the forecasted FY2025 earnings, which is lower than the five-year average of approximately 20 times.

Rating maintained at Buy for Kotak Institutional Equities-infosys

The first quarter of FY24 saw an unexpected, significant decrease in growth projections, as reported by analysts at Kotak Institutional Equities. There are no signs that the company has ceded its market leadership or share, but further investigation is needed. As a result, the revenue forecast for FY2024-26 was downscaled by 2-3%, and the estimated constant currency revenue growth for FY2024 lowered to 3.3%, versus the prior 4.9% projection.

Because of a reduced growth rate and a slight decline in margins, the EPS estimates have also been lowered by 2-3%. However, the INR/USD assumption has been adjusted to offset these changes. Despite the revisions, the report maintains a BUY rating and values the company at an unchanged multiple of 20 times the estimated June 2025 EPS, resulting in a fair value of ₹1,470.

The recommendation remains BUY at Jefferies Equity Research

Despite the reduction, Jefferies still expects Infosys to achieve EPS CAGR (Compound Annual Growth Rate) of 10% over FY 2023-2026.

Analysts are confident that Infosys’ stock will not experience extensive losses despite its 9% fall on American Depository Receipts (ADRs). The trust in the company indicates that with a similar slope tomorrow, it will be trading at 19 times its FY2025 EPS. This is in line with its average price-to-earnings ratio for the past ten years and 13% below the five-year median. Since the current valuation is based on realistic expectations, they have maintained their BUY rating with a consistent target of ₹1,550 per share which rests on 22 times forward EPS for the upcoming year.

Motilal Oswal Financial Services remains a BUY recommendation

Despite the 325 basis points cut in guidance at the midpoint, analysts at Motilal Oswal Financial Services revised their guidance FY2024 estimates, which were initially 3.8% YoY CC (year-on-year constant currency) by 120 basis points (bps) due to weaker demand commentary and project delays. The stock is valued at ₹1600 at 22.5 times estimated FY25 EPS, according to their assessment. Their recommendation for the stock remains BUY.

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