Infosys' Q3 Shines Through Cloud Activity; Increasing FVE to $16, but Shares Still Overvalued

Infosys’ third quarter was a healthy one, as the narrow-moat company reported earnings above our expectations and its guidance due to greater traction in digital and cloud platforms. We are increasing our fair value estimate to $16 per share from $14 as we factor in management's hefty raise in guidance and our increased confidence in the company's long-term prospects because of its focus on appealing growth areas like manufacturing digital transformation. The shares rose 3% on Jan. 12 after results were released and are overvalued, in our view. We continue to believe that the market is not adequately factoring in competitive risks in the IT services space posed by cloud service providers as well as country-specific risks, leading to the mismatch between Infosys' market value and our fair value estimate.