Infosys Ltd. (INFY, $10.63): “Business Plan in Focus”
By: Alex Penkwitz, AIM Student at Marquette University
Disclosure: The AIM Equity Fund currently holds this position.
This article was written by myself, and it expresses my own opinions. I am not
receiving compensation for it and I have no business relationship with any
company whose stock is mentioned in this article.
Summary
• Infosys Ltd (NYSE: INFY) is a worldwide
provider of software development and engineering, application management, business
process outsourcing and consulting to corporations.
• INFY’s Q3 earnings results were impressive, seeing 10.1% revenue
growth compared to Q2.
• Employee attrition, which has become a major area of focus for
the company, declined 2% in the quarter.
• INFY saw sequential growth in Q3 for the following business
segments: Financial Services, Energy, Utilities, Resources and Services, as
well as Manufacturing.
Key Points:
INFY released strong Q3 earnings, displaying their resilience
during the market volatility in December of 2018. This supports INFY’s strong
business plan to secure large deals and combat employee attrition. During Q3, INFY had 14 large deal wins with a
total contract value (TCV) of $1.6 billion, which brings their nine-month TCV
to $4.7 billion, representing a 114% increase from 2018.
As previously mentioned, INFY has emphasized its focus on lowering
their employee attrition rate. In Q3, employee attrition declined 2% from a
previous rate of 19.8%. In addition to lowering their employee attrition rate,
INFY added nearly 19,000 employees, raising the total amount of employees to
225,000 which represents a 12.5% increase since November 30, 2018 when pitched.
INFY has seven main operating segments and saw sequential growth
in three of them during Q3. The Financial Services segment saw a 3.6%
sequential increase, the Energy, Utilities, Resources and Services segment
increased 7.4%, and the Manufacturing segment increased 7.6% sequentially. As
stated before, this strong segment growth shows the resiliency that INFY has
during market volatility, as seen in December of 2018.
What has the stock done lately?
Infosys Ltd. was pitched on November 30, 2018 and has since outperformed
the initial projections, increasing nearly 14%. Even during the rough Q4 of
2018, INFY saw very little decline, and has since recovered and is closing in
on their 52-week high price of $10.94. With an initial price target set at
$11.16, representing a potential upside of nearly 20%, I believe that there is
a high probability that this price target will be surpassed during the AIM
International Fund’s holding period of 3 to 5 years.
Past Year Performance:
INFY has increased 19.3% YoY and is near its 52-week high price of
$10.94. After a strong Q3 earnings release, INFY rose 3.8% on January 15th,
2019.
Source: FactSet
My Takeaway:
INFY has had a strong stock performance over the last 3 months. As
mentioned, INFY’s focus of combatting employee attrition and capturing large
deals has converted into a strong performance during Q3 of 2019. With the IT
services sector’s total addressable market projected to expand to a $2.4
trillion market by 2025, INFY is positioned well to take a significant share of
this market using their strong business plan. Look to see INFY’s stock surpass
the initial price target of $11.16.
Source: FactSet
