In a recent report, CFRA has upgraded Infosys (NS:INFY) stock from Hold to Buy, signaling increased confidence in the company's future performance. Despite maintaining a target price of US$20, CFRA has raised its valuation target to 25 times FY 25 (Mar.) earnings per share (EPS), up from 23 times, exceeding the 5-year mean price-to-earnings (P/E) ratio of 24 times.
While trimming FY 25 EPS by 7% to US$0.79, CFRA has initiated FY 26 EPS at US$0.88. Infosys' FY 24 results were in line with expectations, with EPS growing by 6% to US$0.76 and revenue by 2% to US$18.6 billion. Although operating profit margin (OPM) narrowed slightly by 0.4% to 20.7%, primarily due to salary hikes since November 2023, it was mitigated by an 8% increase in revenue per core employee.
A significant highlight is Infosys' achievement of US$17.7 billion in large deal wins in FY 24 (Mar-Q: US$4.5 billion), a substantial rise from FY 23's US$9.8 billion. CFRA anticipates the revenue growth impact to materialize in FY 26 as corporate spending potentially shifts towards discretionary spending.
CFRA's increased optimism stems from Infosys' adoption of generative AI (genAI), which has the potential to enhance revenue across various business areas and improve margins by automating coding workload. This strategic move towards genAI aligns with Infosys' focus on innovation and technological advancement.
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Currently, Infosys ADR (listed in the US) is trading at US$17.17 and InvestingPro’s fair value feature is estimating an upside potential of 2.2% to 17.55. Its counterpart - Indian-listed shares are trading at INR 1,433.6, with an upside of 2.3% to INR 1,467.
However, analysts that are covering this counter are more bullish and a total of 43 of them are estimating an average upside till INR 1,595. A financial health score of 4 out of 5 also builds up confidence in the counter. Investors can keep a tab on this score as their primary line of check for stocks that eventually qualify for portfolio addition.
The fair value feature is quite helpful in determining whether the stock is overvalued or undervalued, further helping in maintaining the portfolio-level valuations in check. Investors can also check the prices and valuations of the ADRs of Indian companies in InvestingPro.
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X (formerly, Twitter) - Aayush Khanna