: Infosys provides ‘plenty of ammunition for bulls and bears’ with mixed earnings report

Infosys beat on the top line but missed Wall Street’s earnings expectations in a Sunday report, sending shares down on Monday.



reported revenue of $4.44 billion, beating Wall Street’s estimate of $4.37 billion, but the Indian tech giant earned 16 cents a share, lower than expectations of 18 cents a share. Earnings declined from last year, when Infosys reported 17 cents a share, but revenue improved from $4 billion.

“INFY reported mixed Q1/FY23 results, and FY23 guidance, providing plenty of ‘ammunition’ for bulls and bears,” Wedbush analyst Moshe Katri wrote in a note released on Monday.

Infosys shares fell 2% to $18.49 on Monday, and have declined 26.9% so far in 2022, compared with the S&P 500’s

17.2% decline. The S&P 500 was down 0.4% on Monday

Katri noted that Infosys’ constant currency revenue growth — which removes foreign-exchange rates, which have been tough for multinationals due to the strong dollar — exceeded expectations, with robust results in Europe, digital, manufacturing and communications. “Management also pointed to record, robust deal pipeline, with a Q-Q decline in attrition rates,” he added.

However, Katri noted Infosys’ earnings miss, with the company’s EBIT margin down 370 BPTS year-over-year. “Management also tightened its FY23’s guided EBIT margin range from 21-23% to the low end of the range, suggesting EBIT margin reaching trough levels,” he wrote.

Wedbush lowered its Infosys price target to $25 from $30 and maintained its outperform rating.

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Susquehanna Financial Group noted that, despite major foreign-exchange challenges, Infosys beat top-line estimates. The tech giant also increased its 2023 fiscal year revenue guidance to between 14% and 16% from 13% to 15% in constant currency.

“Headwinds from wage inflation due to labor shortages and RTO appear to be particularly intense, and may linger for FY23,” Susquehanna analyst James Friedman wrote. “Still, we view these difficulties as near term.”

The analyst firm lowered its second-quarter and full-year revenue estimates to $4.51 billion and $18.5 billion, respectively, from $4.53 billion and $18.6 billion. However, Susquehanna remains positive on the stock with a price target of $29.

Stifel analyst David Grossman highlighted Infosys’ gross margin declines in a note released Monday.

“Gross margins declined 440bp y/y and 170bp q/ q reflecting known industry issues (pricing improvement lagging wage inflation), seasonality (promotions/annual wage increases), aggressive hiring (lower utilization) and elevated attrition,” he wrote. “While margin pressure is an industrywide issue, INFY’s margins are down significantly more than its peers, which begs the question whether revenue growth is coming at the expense of margin.”

Stifel has a hold rating and $21 price target on Infosys.

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