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Infosys (INFY) to Report Q1 Earnings: What's in the Cards?

Zacks Equity Research

Infosys Limited INFY is set to report first-quarter fiscal 2020 results on Jul 12.

The company’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters and matched the same twice, the average positive surprise being 3.92%.

In the last reported quarter, the company’s adjusted earnings of 13 cents per share were in line with the Zacks Consensus Estimate.

Revenues of $3.06 billion increased 9.1% year over year and also surpassed the Zacks Consensus Estimate of $3.04 billion. In terms of constant currency (CC), revenues were up 11.7%.

For the fiscal first quarter, the Zacks Consensus Estimate for revenues is pegged at $3.09 billion, indicating growth of 9.2% from the year-ago reported figure. The Zacks Consensus Estimate for earnings stands at 13 cents, implying a decline of 7.14% from the prior-year reported number.

Let’s see how things are shaping up for the upcoming announcement.

Factors at Play

Infosys’ first-quarter fiscal 2020 results are likely to benefit from large deal wins and growth in digital services. The company’s attempts to reinforce its digital transformation capabilities for expanding and solidifying its position in the highly competitive environment will be a steady tailwind.

Growing traction from the company’s digital banking platform with new major global logos adopting it is expected to boost the upcoming quarterly results. Notably, the company is gaining from strong demand for cloud, IoT, security and data analytics among others. Higher investments by clients in digital transformation, artificial intelligence and automation are an upside.

Notably, in fourth-quarter fiscal 2019, the company snapped up 13 large deals with a total contract value (TCV) of more than $1.6 billion. Three of these were in Financial Services, Manufacturing and Life Sciences, two in Hi Tech and one in Retail and other segment. The company reported that its $100 million-plus clients now add up to 25 compared with 20 a year ago. The large deal momentum is likely to continue as a tailwind for the company in the soon-to-be-reported quarter.

However, rupee appreciation and higher compensation to tackle the rising attrition are likely to keep the operating margin under pressure in the fiscal first quarter. Moreover, inflated investments in sales and localization, and the escalating costs due to increasing large deals inked of late persistently plague the stock.

Infosys Limited Price and EPS Surprise

Infosys Limited Price and EPS Surprise

Infosys Limited price-eps-surprise | Infosys Limited Quote

What the Model Says

The proven Zacks model clearly shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has high chances of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Infosys currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, its Earnings ESP of -1.34% in the combination makes us apprehensive about the stock’s beat prospects this reporting cycle.

Key Picks

Here are some stocks worth considering as our model shows that these have the right mix of elements to beat on earnings in the upcoming releases:

Alteryx, Inc. AYX has an Earnings ESP of +22.41% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

United States Cellular Corporation USM has an Earnings ESP of +15.66% and is a Zacks #1 Ranked player.

Perion Network Ltd PERI has an Earnings ESP of +33.33% and a Zacks Rank #2.

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