Company Reports

We are maintaining our $16 fair value estimate for narrow-moat Infosys after the firm closed out fiscal 2024 with financial results and guidance reflecting the weak demand landscape as companies rethink their IT spending during a period of macroeconomic uncertainty. While the near-term picture remains murky, we reiterate our confidence in Infosys’ long-term opportunity as secular tailwinds such as digital transformations, cloud migrations, and increased usage of AI stand to drive demand for IT services vendors. With shares trading down sharply after the firm reported earnings, we view Infosys’ shares as fairly valued.

Infosys is a leading global IT services vendor, with the typical menu of offerings from software implementation to digital transformation consulting to servicing entire business operations teams. We think Infosys merits a narrow economic moat, similar to many of its peers, as we believe the company benefits from switching costs and intangible assets, although we also see Infosys benefiting from a cost advantage. While the company is experiencing industrywide labor shortages, we think that its stable moat trend will stay secure, and forays into the higher value realm of industrials engineering will help ensure Infosys does not miss out on substantial growth trends within the IT services industry at large.

We are maintaining our $16 fair value estimate after narrow-moat Infosys closed out its third quarter with financial results below our prior estimates as we still believe revenue will bounce back next year. Similar to their peer, Tata Consultancy Services, which reported on Jan. 11, 2024, Infosys' financials continued to be weighed down by weak customer demand for IT service solutions amid macroeconomic uncertainty. While we reiterate our long-term positive outlook on Infosys, we believe the market is projecting a rosier future for the firm, with shares trading at a slight premium to our fair value estimate.

Infosys’ second-quarter results surpassed our expectations on the top line and came right in line with our EPS expectations, although the market was baking in a stronger EPS, hence the 6% drop in the stock price upon results. Despite the revenue beat compared with our expectations and those of the market, the company lowered growth expectations (on a constant currency basis) for the year. Nonetheless, we were already baking in more conservative top-line growth. We maintain our fair value estimate for Infosys at $16 per share. We continue to think Infosys’ moat sources are well protected and the firm will be prepared to bounce back once discretionary spending loosens up.

Narrow-moat Infosys reported first-quarter earnings below our expectations. Management offered a grimmer outlook for 2024 revenue growth, citing clients’ revision of discretionary spending and delayed megadeal closings. Despite clients’ continued willingness to collaborate with Infosys on cost- and efficiency-improvement programs, we are lowering our fair value estimate from $17 to $16 per share after baking in a weaker near term. After the announcement, shares dropped over 9% to $16 per share, leaving the stocks trading in fair-value territory, in our view.

Infosys is a leading global IT services provider, with the typical menu of offerings from software implementation to digital transformation consulting to servicing entire business operations teams. We think Infosys merits a narrow economic moat, similar to many of its peers, as we believe the company benefits from switching costs and intangible assets, although we also see Infosys benefiting from a cost advantage. While the company is experiencing industrywide labor shortages, we think that its stable moat trend will stay secure, and forays into the higher value realm of industrials engineering will help ensure Infosys does not miss out on substantial growth trends within the IT services industry at large.

Infosys is a leading global IT services provider, with the typical menu of offerings from software implementation to digital transformation consulting to servicing entire business operations teams. We think Infosys merits a narrow economic moat, similar to many of its peers, as we believe the company benefits from switching costs and intangible assets, although we also see Infosys benefiting from a cost advantage. While the company is experiencing industrywide labor shortages, we think that its stable moat trend will stay secure, and forays into the higher value realm of industrials engineering will help ensure Infosys does not miss out on substantial growth trends within the IT services industry at large.

Infosys’ fourth-quarter results came in under our expectations as the company experienced unforeseen winding down of client projects. While the near-term weakness is occurring throughout the industry, we were caught off guard by Infosys’ significantly lower 2024 guidance than we were expecting. While peer Tata Consultancy Services, or TCS, refrained from giving an outlook on April 12, that is the norm for the company, and we sensed overall optimism ahead with a sense of general near-term moderation rather than sharp declines. In contrast, Infosys’ outlook for the year indicates significantly steeper conservatism, which we think has weight given Infosys’ fourth-quarter performance compared with TCS. As a result, we are lowering our fair value estimate for the narrow-moat firm to $17 from $18 per share. Shares are down 8% upon results to near $16 per share, which leaves the stock fairly valued.

Infosys is a leading global IT services provider, with the typical menu of offerings from software implementation to digital transformation consulting to servicing entire business operations teams. We think Infosys merits a narrow economic moat, similar to many of its peers, as we believe the company benefits from switching costs and intangible assets, although we also see Infosys benefiting from a cost advantage. While the company is experiencing industrywide labor shortages, we think that its stable moat trend will stay secure, and forays into the higher value realm of industrials engineering will help ensure Infosys does not miss out on substantial growth trends within the IT services industry at large.

Infosys continued the trend Tata Consultancy Services’ earnings started earlier this week: overall pleasing fiscal third-quarter results despite a tough economic environment. We were pleased to see that Infosys is continuing to take share in the IT services market amid a backdrop of vendor consolidation and is increasing digital revenue substantially. While the firm continues to be affected by currency headwinds and delayed decision-making, we believe that Infosys’ long-term potential remains strong, as evidenced by posting the greatest number of large deals in Infosys’ history, in the quarter. Moreover, we were pleased that 36% of total contract value in the quarter was net new. Altogether, we are raising our fair value estimate of narrow-moat Infosys shares to $18 from $17 per share, which leaves shares fairly valued.

Infosys is a leading global IT services provider, with the typical menu of offerings from software implementation to digital transformation consulting to servicing entire business operations teams. We think Infosys merits a narrow economic moat, similar to many of its peers, as we believe the company benefits from switching costs and intangible assets, although we also see Infosys benefiting from a cost advantage. While the company is experiencing industrywide labor shortages, we think that its stable moat trend will stay secure, and forays into the higher value realm of industrials engineering will help ensure Infosys does not miss out on substantial growth trends within the IT services industry at large.

Infosys’ second-quarter results were right in line with our expectations while guidance was mixed, with revenue expectations higher and operating margins lower. Infosys was the last of the big three Indian IT services companies to report earnings, falling in between Wipro’s miss and Tata Consultancy Services’ beat against our former expectations. Although Wipro had the weakest results of the three, we believe its shares are still the most attractive, in 4-star territory. We are maintaining our $17 fair value estimate for narrow-moat Infosys and think the share are fairly valued. We continue to believe that Infosys’ switching costs remain high and stable despite the uncertain macroeconomic environment.

Infosys is a leading global IT services provider, with the typical menu of offerings from software implementation to digital transformation consulting to servicing entire business operations teams. We think Infosys merits a narrow economic moat, similar to many of its peers, as we believe the company benefits from switching costs and intangible assets, although we also see Infosys benefiting from a cost advantage. While the company is experiencing industrywide labor shortages, we think that its stable moat trend will stay secure, and forays into the higher value realm of industrials engineering will help ensure Infosys does not miss out on substantial growth trends within the IT services industry at large.

Demand for digital transformations remained strong in Infosys' first quarter, while profitability disappointed as employee compensation headwinds were stronger than we expected. Infosys boosted its revenue guidance for the year out of confidence from a healthy pipeline. The firm maintained its operating margin outlook, though management qualified that they now see results coming in at the lower end of their preserved range out of caution concerning wage inflation despite trends of improving attrition and benefits from rupee depreciation.

Infosys’ fourth quarter was mixed as the company continued to see strong demand for IT services offerings—especially those related to digital transformation—while suffering from a talent shortage. Nonetheless, like Tata Consultancy Services, Infosys saw indicators of an easing talent environment—as quarterly annualized attrition declined by about 5%. Overall, fourth-quarter results came right in line with our expectations. We are increasing our fair value estimate for narrow-moat Infosys to $17 per share from $16 per share due to the time value of money and slightly higher revenue expectations over the next five years. Shares are down 6% upon results to $21 per share, as Infosys came in slightly under market consensus. All in all, this leaves the stock in 2-star territory, and we recommend investors wait for a greater margin of safety to invest in this high-quality stock. We continue to believe that the gap in real wages between India and Infosys' main countries of business will narrow and pressure margins substantially over the next 10 years. While we believe these pressures will be offset by increasing mix in higher-value areas and increased automation, we think that the market is underestimating such wage inflation to come.

Infosys is a leading global IT services provider, with the typical menu of offerings from software implementation to digital transformation consulting to servicing entire business operations teams. We think Infosys merits a narrow economic moat, similar to many of its peers, as we believe the company benefits from switching costs and intangible assets, although we also see Infosys benefiting from a cost advantage. While the company is experiencing industrywide labor shortages, we think that its stable moat trend will stay secure, and forays into the higher value realm of industrials engineering will help ensure Infosys does not miss out on substantial growth trends within the IT services industry at large.

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.

Infosys is a leading global IT services provider, with the typical menu of offerings from software implementation to digital transformation consulting to servicing entire business operations teams. We think Infosys merits a narrow economic moat, similar to many of its peers, as we believe the company benefits from switching costs and intangible assets, although we also see Infosys benefiting from a cost advantage. While the company is experiencing industrywide labor shortages, we think that its stable moat trend will stay secure, and forays into the higher value realm of industrials engineering will help ensure Infosys does not miss out on substantial growth trends within the IT services industry at large.

Infosys is a leading global IT services provider, with the typical menu of offerings from software implementation to digital transformation consulting to servicing entire business operations teams. We think Infosys merits a narrow economic moat, similar to many of its peers, as we believe the company benefits from switching costs and intangible assets, although we also see Infosys benefiting from a cost advantage. While the company is experiencing industrywide labor shortages, we think that its stable moat trend will stay secure, and forays into the higher value realm of industrials engineering will help ensure Infosys does not miss out on substantial growth trends within the IT services industry at large.

Narrow-moat Infosys reported second-quarter earnings in line with our expectations due to strong results all around. Infosys was the last of the big three Indian IT services to report earnings, joining Wipro in marking a quarter of solid results, though, in comparison, Tata Consultancy Services’ results were slightly softer than we expected. All three firms have been blessed and burdened with stellar digital transformation demand and high talent attrition rates over the last several quarters. While TCS reported that it had the industry-best attrition rate in the quarter at 12%, Infosys’ rates came closer to other peers’ rates, at 20% in the quarter--close to Accenture’s 19%. While attrition rates in the industry are at extreme highs, the consensus from reporting firms is that the worst is not yet behind us. We think attrition rates could stay at current levels or slightly higher over the next few quarters before easing. Nonetheless, the demand that can still be met with a current rotating door of talent for Infosys is encouraging, and the firm slightly raised its revenue outlook, which we think is achievable. We have increased our fair value estimate for Infosys to $14 per share from $11.90 after upgrading the company’s cost of equity to below average from average. The stock is up 4% after results to nearly $23 per share, leaving the stock overvalued, in our view.