What should investors do with Infosys post Q3 results: Buy, sell or hold?

Stocks

Credit Suisse has kept an outperform call on the stock, UBS has maintained a neutral call and Goldman Sachs has a buy rating

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Infosys’ share price rose nearly 2 percent in early trade on January 13 a day after the IT company reported its December quarter earnings.

Infosys on Wednesday reported a 7.2 percent quarter-on-quarter rise in its consolidated net profit for the quarter ended December to Rs 5,809 crore.

The IT major also reported a 7.7 percent on-quarter rise in consolidated revenues to Rs 31,867 crore driven by a hybrid cloud partnership with German auto major Daimler announced in December 2020, ramp-up of large deals and growth across verticals.

On the operating front, consolidated operating profit grew 7.3 percent sequentially to Rs 7,484 crore even as selling and marketing expenses climbed 7.3 percent on-quarter.

However, Infosys reported a 10-basis-point quarter-on-quarter contraction in consolidated operating margin to 23.5 percent owing to continued costs towards trying to retain talent in the company.

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Here is what brokerages have to say about the stock and the company post December quarter earnings:

Credit Suisse

The research house has kept an outperform call on the stock and raised the target price to Rs 2,350 as it was a solid quarter with strong beat on revenue and net profit.

It has increased FY22/23/24 EPS estimates by 2 percent/4 percent/4.5 percent respectively.

Morgan Stanley

It has kept overweight rating on the stock and raised the target price to Rs 2,250 from Rs 2,110.

It also raised EPS estimates by up to 3 percent as revenue growth surprised the most amongst peers and the margin pressures incrementally appeared to be easing.

Morgan Stanley feels that the stock should further close valuation gap with TCS.

Bernstein

Broking firm has maintained an outperform rating, raised target to Rs 2,290 and increased FY22/ FY23 EPS estimates by 1.2 percent/3.1 percent.

Citi

Research firm Citi has maintained a buy call and raised the target price to Rs 2,180 from Rs 2,140.

It raised the FY22-FY24 EPS estimates by 2 percent each.

There was a strong revenue beat, in-line margin and good increase in guidance, while the management commentary on growth remained upbeat.

Goldman Sachs

Goldman Sachs has kept a buy rating with a target price at Rs 2,415.

It has increased EPS estimates by up to 3 percent over FY22-26. The management expects attrition to remain high for the next few quarters.

UBS

UBS has maintained neutral call on the stock with a target at Rs 1,820 as Q3 was a beat.

It expects upward revisions to consensus forecasts for FY23, while investors remain optimistic on demand, given broad-based growth.

Sharekhan

We believe Infosys is well-equipped to deliver industry-leading organic growth among large peers in the medium term.

We expect it to report dollar revenue and earnings growth of 12.3% and 15.4%, respectively, over FY2022-FY2024E.

We continue to like Infosys because of its superior digital capability, consistent investments in talent, a strong capital allocation policy and a healthy balance sheet.

Infosys remains our top pick among large cap IT stocks. Hence, we maintain a buy rating on the stock with a revised price target of Rs 2,300.

Motilal Oswal

Infosys delivered a strong performance in 3QFY22. “We expect it to deliver top quartile growth in FY22E given its strong capabilities and ramp-up in large deal wins,” Motilal said.

“As Infosys has been outperforming TCS, we expect no valuation divergence between the two companies. Based on our revised estimates, the stock is currently trading at 28x FY23E EPS. We value the stock at 30x FY24E EPS, implying a target price of Rs 2,310,” it added.

Prabhudas Lilladher

“We have baked in 21%/15%/11.4% growth for FY22/23/24. Our EPS estimates increase by ~1.5%/4.1%/3.1% for FY22/23/24E largely led by increase in revenue estimates given strength in demand,”¬†Prabhudas said.

“We arrive at DCF based target price of Rs 2234 (implied target multiple of 30x P/E on FY24 EPS). Infy is currently trading at 28.7x/25.1x on earnings of Rs 65.5/74.8 for FY22/23E respectively with revenue CAGR of 13.2% and EPS CAGR of 18% over FY22-24E,” it added.

At 09:20 hrs Infosys was quoting at Rs 1,906.20, up Rs 28.60 or 1.52 percent on the BSE.

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