Brokerage firm Morgan Stanley believes that the disappointment on the growth front in the face of elevated industry expectations could result in a sharp sell-off in the stock going ahead and expects that to increase the valuation discount of the stock to peers like Infosys and TCS.
Wipro Q3
Wipro’s lower-than-expected revenue growth performance for the quarter ended December was categorised as a “minor hiccup” by analysts and not as a sign of an impending slowdown in the information technology major’s earnings growth trajectory.
The Bengaluru-based company reported a 3 percent sequential growth in revenues for the quarter ended December in constant currency terms post-market hours on Wednesday. Wipro also guided for 2-4 percent sequential growth in sales for the quarter ending March, which was in line with analysts’ expectations.
“While we are impressed with the progress on growth priorities, it is more than adequately priced in the current valuation. Valuations do not offer any margin of safety, necessary in turnaround stories,” said brokerage firm Kotak Institutional Equities in a note.
Brokerage firm Morgan Stanley believes that the disappointment on the growth front in the face of elevated industry expectations could result in a sharp sell-off in the stock going ahead and expects that to increase the valuation discount of the stock to peers like Infosys and TCS.
Reacting to the earnings disappointment, shares of the company fell nearly 5 percent to Rs 658.40 on the National Stock Exchange.
Wipro’s 26.5 times one-year forward price-to-earnings multiple is currently at a discount of 18 percent to that of TCS and 15 percent to that of Infosys.
Most analysts agreed that the company’s strong commentary suggested that growth will pick up in the coming quarters given the strong demand environment for IT services across the globe. “Wipro has delivered a fifth consecutive quarter of strong performance, both on revenues and margins. Order bookings have been strong too,” said Chief Executive Officer Thierry Delaporte in a post-earnings virtual press meet.
That said, brokerage firm Motilal Oswal Financial Services argued that given the strong performance of the company in previous quarters and positive commentary of the management, the March quarter growth guidance was “underwhelming” and “would act as a drag on near-term share price performance”.
While there were no rating downgrades for the company after the lower-than-expected performance, brokerages trimmed their earnings estimate for 2021-22 to 2023-24 by 1-2 percent, which resulted in lowering of their price targets by a similar amount.
“We maintain our neutral stance as we await further evidence of the execution of Wipro’s refreshed strategy, and a successful turnaround from its growth struggles over the last decade before turning more constructive on the stock,” Motilal Oswal Financial Services said.
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