On Tuesday, JPMorgan (NYSE:JPM) adjusted the price target for HCL Technologies (NS:HCLT:IN) to INR2,200 from the previous INR2,250, while maintaining an Overweight rating on the stock. JPMorgan noted that HCL Technologies fell short of expected headline revenues by 0.4% and presented a narrowed organic Services growth. The company's margins, however, were reported to align with predictions.
HCL Technologies recorded a 1.7% quarter-over-quarter growth in constant currency, which is anticipated to be the highest among its competitors, with Tata Consultancy Services (NS:TCS) reporting no growth. Despite this, HCL's guidance for the fourth quarter indicates a potential decrease in momentum, with forecasts ranging from a 1.3% decline to a 0.6% increase. This forecast is attributed to the one-year mark of the Verizon (NYSE:VZ) deal and the completion of a significant transaction in Texas.
The company's new signings amounted to $2.1 billion, a 6% decrease from the previous quarter, falling short of the $2.3 to $2.5 billion target mentioned at their Analyst Day. However, the Actual Contract Value (ACV) saw a 9% increase quarter-over-quarter and a 23% increase year-over-year. While the fourth quarter guidance seems conservative, the company expressed a more optimistic outlook for the first quarter of fiscal year 2026 as compared to the first quarter of fiscal year 2025, hinting that some deals might be deferred to FY26.
JPMorgan commented on the stock's performance, stating that HCL Technologies is expected to remain one of the fastest-growing large-scale providers in FY25 and likely in FY26 as well. The firm announced a special dividend of Rs6, leading to a total payout of Rs18, which represents 88% of Profit After Tax (PAT) and 75% of Free Cash Flow (FCF), surpassing the target payout ratio. This high dividend payout is consistent with that of HCL's larger peers and is anticipated to provide support for the stock's price.
Despite the adjustments, the analyst expressed continued confidence in HCL Technologies, suggesting that the current weakness in the stock's price presents a buying opportunity. The analyst's projections for the company's revenue and Earnings Per Share (EPS) have been slightly reduced by 1-2% and 2-4%, respectively. JPMorgan concluded by reaffirming an Overweight rating and encouraging accumulation of the stock during its current dip.
In other recent news, HCL Technologies experienced an upgrade from JPMorgan, shifting the stock from Neutral to Overweight, accompanied by an increased price target to INR 2,250.00. This adjustment reflects the integration of the CTG acquisition into the financial forecasts, anticipated to enhance HCL Technologies' constant currency revenue growth by 3% over the fiscal years 2026-2027.
JPMorgan predicts that HCL Technologies will emerge as the fastest-growing large-cap company during this period. This projection, based on the firm's performance and potential, justifies a valuation multiple akin to industry peers such as Infosys (NS:INFY) and Tata Consultancy Services.
The optimism surrounding HCL Technologies is rooted in its portfolio composition, which is seen as less dependent on discretionary spending outside the Banking, Financial Services, and Insurance sector. In a phase where such expenditures have not fully recovered beyond this sector, HCL Technologies is expected to sustain its growth momentum.
The upgrade and revised price target consider the strategic advantages of HCL Technologies' recent acquisition and its influence on the company's long-term revenue path. The acquisition is projected to significantly augment the company's revenue growth in the coming years. These recent developments reflect a positive outlook for HCL Technologies, as it is well-positioned to capitalize on its portfolio in the current economic environment.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.