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On Monday, Jefferies analyst Akshat Agarwal adjusted the price target for Infosys (NSE:INFY) Ltd. (INFO:IN) (NYSE: INFY), a global leader in next-generation digital services and consulting, to INR1,835.00, down from INR2,150.00, while still recommending the stock as a Buy. The revision reflects a ~20% correction in Infosys stock due to growth concerns influenced by a potential weakening of the US macroeconomic environment. With a market capitalization of $77 billion and a current stock price of $18.60, InvestingPro data shows the company maintains strong financial health with an overall score of 3.1 out of 5, labeled as "GREAT."
Agarwal’s analysis indicates that Infosys’ constant currency revenue growth in fiscal year 2026 could range between 4-6%, even if discretionary spending does not recover. He notes that the risks related to price-to-earnings (PE) de-rating are limited, citing a marked improvement in free cash flow (FCF) conversion and higher payouts. Despite cutting the earnings per share (EPS) estimates by 2-4% due to slower growth predictions, the Buy rating is reaffirmed. Current InvestingPro data reveals a P/E ratio of 23.4x and strong cash flows, with the company generating $4 billion in levered free cash flow over the last twelve months. According to InvestingPro’s Fair Value analysis, the stock appears slightly undervalued at current levels.
The analyst elaborates that the projected EPS for fiscal year 2027 is likely to be between INR70 and INR80, assuming a US dollar revenue compound annual growth rate (CAGR) of 5-7% and an EBIT margin of 20-22%. This forecast translates into a bear case value of INR1,400 and a bull case value of INR2,400, based on the company’s PE multiple scenarios. The current market price suggests a 12% downside and a 50% upside, which Agarwal finds to present a very attractive risk-reward balance.
Agarwal further explains that Infosys’ PE range has significantly re-rated over the years, with a five-year average at 24x and a ten-year average at 20.5x, due to improved FCF conversion, now at 100% compared to 60-65% in FY16, and increased payouts, which have risen from 40% in FY15-17 to the current 80-85%. He points out that the company’s average FCF and dividend yields for the past five and ten years are nearly identical. Historically, excluding extreme periods like the Covid pandemic, Infosys stock has bottomed at approximately a 4% dividend yield, which implies a 20x PE at an 80% payout ratio. If the payout were 40%, a 4% dividend yield would suggest a 10x PE. InvestingPro data shows that Infosys has maintained dividend payments for 25 consecutive years, with a current dividend yield of 2.3% and impressive dividend growth of 15.9% over the last twelve months. For deeper insights into Infosys’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Infosys Ltd. has reported strong financial results, surpassing expectations in revenue, margins, and earnings growth. The company announced a quarter-over-quarter constant currency revenue increase of 1.7%, exceeding the consensus estimate of 1%. Infosys also revised its fiscal year 2025 revenue growth forecast upward, expecting a 4.5%-5% year-over-year constant currency increase. UBS analysts highlighted a 60% quarter-over-quarter surge in net new deals, reaffirming a Buy rating with a price target of INR2,250.00. Despite these positive developments, Morgan Stanley (NYSE:MS) downgraded Infosys from Overweight to Equalweight, citing concerns over growth outlook and weaker deal wins in fiscal year 2025.
Meanwhile, CLSA upgraded Infosys to Outperform, maintaining a price target of INR1,978.00, emphasizing the company’s stable demand outlook and strategic positioning in SaaS implementations. Bernstein, while slightly reducing the price target to INR2,330.00, maintained an Outperform rating, noting Infosys as a top pick in the IT services sector. Erste Group, however, shifted its rating from Buy to Hold, pointing out that Infosys’ growth rates remain below the global technology sector’s average. These recent developments reflect a mixed analyst sentiment regarding Infosys’ growth potential and market positioning.
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