Infosys stock upgraded by Axis Capital—growth leadership and margin stability drive optimism

On Wednesday, Axis Capital (NYSE:AXS) Limited revised its stance on Infosys (NS:INFY) Ltd. (INFO:IN) (NYSE: INFY), elevating the stock from a 'Reduce' rating to an 'Add' status. Accompanying the upgrade, the firm also increased the price target for Infosys shares from INR 1,790.00 to INR 2,050.00.

The stock, currently trading at $23.24 and near its 52-week high of $23.48, has shown remarkable momentum with a 31.9% gain over the past six months, according to InvestingPro data.

The adjustment by Axis Capital comes on the heels of observations regarding improving demand trends, which are expected to position Infosys as a growth leader amongst Tier 1 technology companies by the fourth quarter of the fiscal year 2025 on a year-over-year basis.

According to the analyst, this anticipated regaining of growth leadership, coupled with potential margin efficiencies forecasted for fiscal years 2025 to 2027, warranted a target price-to-earnings ratio enhancement to 26 times, up from the previous 23 times. This new ratio is slightly below the five-year average for the company.

With a current P/E ratio of 29.68 and a market capitalization of $96 billion, InvestingPro analysis suggests the stock is currently trading above its Fair Value.

The optimism surrounding Infosys is further supported by the company's performance in the first half of the fiscal year 2025, which led to an upward revision of its guidance following a challenging fiscal year 2024. During that period, Infosys had to scale back its outlook multiple times throughout the year.

The analyst suggests that the company's modest implied arithmetic should bolster further upward revisions to guidance when third-quarter fiscal year 2025 results are released, scheduled for January 16, 2025. InvestingPro subscribers can access detailed financial health analysis and 7 additional ProTips that provide deeper insights into Infosys's market position and growth potential.

Stability in margins has also been noted, despite the challenges of ramping up large deals. This stability is attributed to execution-related gains from Project Maximus (NYSE:MMS), which has been a significant factor in the company's operational performance. These gains have helped offset the cost pressures associated with executing large-scale projects, maintaining a healthy gross profit margin of 29.52% and contributing to Infosys's "GREAT" financial health score.

In other recent news, Infosys, a digital services and consulting firm, has expanded its partnership with Meta Platforms (NASDAQ:META), Inc. for AI innovation and has established a Meta center of excellence. This collaboration aims to expedite the adoption of Meta's Llama stack, a suite of open-source large language models and tools, and enhance enterprise AI integration. Infosys has also integrated these technologies with its proprietary AI platform, Infosys Topaz, leading to the creation of new AI solutions.

Additionally, Infosys reported a strong second quarter for fiscal year 2025 with a Q2 revenue of $4.9 billion, marking a 3.1% sequential and 3.3% year-on-year growth. This performance led to an upward revision of its FY25 revenue growth guidance to 3.75% to 4.5%.

In terms of analyst perspectives, BMO Capital Markets revised its price target for Infosys from $23.00 to $25.00, maintaining a Market Perform rating. However, Investec (LON:INVP) maintained its Sell rating on Infosys, lowering the price target to INR1,700.00 from INR1,720.00 following the company's first-half financial performance for fiscal year 2025.

These are recent developments that provide investors with a snapshot of Infosys' performance and strategic moves.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.