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Monday, June 24, 2024

What Should Investors Do After the Surprising Revenue Guidance Cut in Q2 That Drove Infosys Stock Down 4.5%?


<p>In Friday’s intraday trading, Infosys shares fell 4.5% on the BSE after the IT giant revised its outlook for FY24 revenue growth from 1-3.5% to 1.0-2.5% in constant currency (CC) terms.</p>
<p>Following the second-largest IT company in India’s earnings announcement on Thursday, a number of domestic and international brokerages expressed their opinions. BofA and JP Morgan maintained a “Neutral” stance on Infosys, while Jefferies, Goldman Sachs, Motilal Oswal, and Kotak Institutional Equities held a “Buy” view. ‘Hold’ on the counter is advised by Nuvama.<img decoding=”async” class=”alignnone wp-image-232778″ src=”https://www.theindiaprint.com/wp-content/uploads/2023/10/theindiaprint.com-in-the-angallu-case-former-cm-chandrababu-naidu-is-granted-anticipated-bail-downlo.jpg” alt=”theindiaprint.com in the angallu case former cm chandrababu naidu is granted anticipated bail downlo” width=”1153″ height=”864″ srcset=”https://www.theindiaprint.com/wp-content/uploads/2023/10/theindiaprint.com-in-the-angallu-case-former-cm-chandrababu-naidu-is-granted-anticipated-bail-downlo.jpg 259w, https://www.theindiaprint.com/wp-content/uploads/2023/10/theindiaprint.com-in-the-angallu-case-former-cm-chandrababu-naidu-is-granted-anticipated-bail-downlo-150×112.jpg 150w” sizes=”(max-width: 1153px) 100vw, 1153px” title=”What Should Investors Do After the Surprising Revenue Guidance Cut in Q2 That Drove Infosys Stock Down 4.5%? 6″></p>
<p>Infosys has reduced the top end of its outlook for full-year revenue growth and is now projecting growth in the range of 1-2.5 percent. The IT giant had previously dramatically slashed its growth outlook in the previous quarter, bringing it down to 1-3.5% from the original expectation of 4–7%, which came as a surprise blow to Wall Street.</p>
<p>Additionally, the business produced strong profitability for the period of July to September, making it more difficult for investors to accept the choice to lower growth projections.</p>
<p>However, the company emphasized Infosys’ strong revenue beat and slightly better-than-expected profitability for the previous quarter. Additionally, the business reported a record-high major transaction value of $7.7 billion in the second quarter, which is a 2.5-fold increase over the same period last year. While this was going on, the company’s EBIT margin for Q2 increased by 40 basis points sequentially as a result of a lower rupee and deferring compensation increases so far.</p>
<p>To help with its profitability, the corporation postponed salary increases in Q2 and will now implement them starting on November 1.</p>
<p>The information technology industry’s key American Depository Receipts (ADRs) listed on the New York Stock Exchange also saw a steep decline, dragged by the weakened confidence. Following the publication of the July-September profits and a dismal growth projection on October 12, Infosys’ ADRs plunged 6.5 percent to finish at $16.46.</p>
<p>What Are Investors To Do?</p>
<p>JP Morgan continues to have a neutral outlook on the stock and has a price objective of Rs 1,400. According to the brokerage, Infosys’ short-term prospects are still dim, but its long-term prospects might be better. For investors who are looking towards FY25, the brokerage believes Infosys has smaller idiosyncratic risks than its competitors.</p>
<p>Reiterating a buy rating on Infosys, Jefferies increased the price objective from Rs. 1,550 to Rs. 1,650. Strong contract wins provide reassurance about growth in FY25, it said as it lowered expectations for FY24 by 1.5%. Strong transaction wins give us confidence in our projection of a 10% CAGR in EPS between FY23 and FY26, the brokerage said.</p>
<p>With a price objective of Rs 1,620, Goldman Sachs has a buy recommendation on the stock. Even though Goldman did not alter its view for FY25, the reduction in FY24 projection is a negative. Starting in CY24, the market will be concentrating on revenue growth and demand comments. It additionally said that while it reduced sales and EPS forecasts by up to 1%, they are still 1-2 percentage points higher than the consensus for FY25/FY26 EPS.</p>
<p>With a price objective of Rs. 1,700 and an unchanged 22X multiple on September 2025E profits, Kotak maintains a buy rating on Infosys. This brokerage is disappointed by the reduction in guidance because it interprets it as evidence of poor discretionary expenditure. “Even if the outlook for discretionary expenditure is hazy, Infosys has secured a fair proportion of sizable contracts to provide some predictability for growth in FY2025E. We reduced the revenue and EPS forecasts for the fiscal years 2024 to 26 by 1-2% each, the company said in its report.</p>


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