A majority of tech stocks have seen a drastic fall in their year-to-date (“YTD”) share prices amid the broader market sell-off.
Infosys
INFY
is a perfect example in this case, shares of which have plunged 24.7% so far this year, despite reporting consecutive quarters of strong financial results.
Infosys’ revenues have grown to $16.31 billion in fiscal 2022 from $11.79 billion in fiscal 2019, indicating a CAGR of 11.4%. Moreover, its earnings have increased at a CAGR of 11.1% to 70 cents per share in fiscal 2022 from 51 cents in fiscal 2019.
Though INFY has fallen out of favor among investors, we consider that it is wise to continue holding the stock for long-term gains, given the strength of its fundamentals and solid prospects.
Infosys Limited Price and Consensus
Infosys Limited price-consensus-chart
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Infosys Limited Quote
Why Hold INFY Stock?
Infosys is benefiting from an encouraging demand environment as customers are undergoing a major digital transformation. The solid demand for Infosys’ digital services as well as the cloud, the Internet of Things (IoT), security and data analytics solutions is a key growth driver.
The COVID-19 mayhem is boosting the digital transformation market. Per a Markets And Markets report, the
global digital transformation market size
is projected to see a CAGR of 19.1% from 2022 to 2026 and reach $1,247.5 billion.
The company’s digital revenues, which contributed 57% to the total revenues, grew 41.2% year over year at constant currency in fiscal 2022.
Infosys has been attempting to reinforce its digital-transformation capabilities for expanding and solidifying the firm’s position in the highly competitive environment. The company is enabling its clients across more than 45 countries to create and execute strategies for their digital transformation.
We note that INFY is looking to build a strong team of digital specialists to cater to clients across all verticals, whose key theme is digital transformation. The company has built solutions, driven by artificial intelligence and machine learning, to digitize the data supply chain.
Additionally, the company has been fortifying its core competencies by pursuing strategic collaborations. Its alliance strategy is targeted at teaming up with leading technology providers, which allows it to cash in on emerging technologies in a mutually advantageous and cost-competitive manner.
To bolster the digital, cloud, legacy modernization and automation businesses, Infosys forged strategic tie-ups with Archrock, Majesco, Britvic, ArcelorMittal, Google, Adobe, Microsoft, Amazon Web Services and Salesforce. To drive engineering services, the company partnered with General Electric to deliver solutions in the field of automation, digital trends and the IoT.
Key Concerns
Infosys is grappling with increasing anti-outsourcing sentiments in certain countries. The company fears that an increase in anti-outsourcing sentiments in certain countries, including the United States and the United Kingdom, is likely to lead to the enactment of restrictive legislations. This, in turn, can limit companies in these countries from outsourcing work and restrict the ability to staff client projects timely.
Furthermore, a halt of the business in Russia over the Ukraine-war issue might impact its near-term financial results. Additionally, higher subcontractor costs and the company’s compensation revision with a higher variable pay and incentives are weighing on margins. Currency volatility between the Indian rupee and the U.S. dollar remains a major concern.
Zacks Rank & Stocks to Consider
Currently, Infosys carries a Zacks Rank #3 (Hold).
Some better-ranked stocks worth considering from the broader technology sector are
Broadcom
AVGO
,
Synopsys
SNPS
and
CrowdStrike
CRWD
. Broadcom and Synopsys each sport a Zacks Rank #1 (Strong Buy), while CrowdStrike carries a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here
.
The Zacks Consensus Estimate for Broadcom’s third-quarter fiscal 2022 earnings has been revised upward by 9.9% to $9.62 per share over the past 60 days. For fiscal 2022, the Zacks Consensus Estimate for Broadcom’s earnings has moved north by 10 cents to $37.06 per share in the past 30 days.
Broadcom’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 2.2%. Shares of AVGO have plunged 25% YTD.
The Zacks Consensus Estimate for Synopsys’ third-quarter fiscal 2022 earnings has been revised upward by 25.3% to $1.93 per share over the past 60 days. For fiscal 2022, earnings estimates have moved north by 7.2% to $8.47 per share in the past 60 days.
Synopsys’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 2.7%. Shares of SNPS have decreased 13.8% YTD.
The Zacks Consensus Estimate for CrowdStrike’s second-quarter fiscal 2023 earnings has been revised upward by three cents to 29 cents per share in the past 60 days. For fiscal 2023, earnings estimates have moved north by a penny to $1.24 per share in the past 30 days.
CrowdStrike’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 44.3%. Shares of CRWD have plunged 7% YTD.
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