UBS sees upside in Infosys stock as net new deals surge 60% QoQ

EditorEmilio Ghigini
Published 17/01/2025, 06:18 pm
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On Friday, UBS reaffirmed a Buy rating with a price target of INR2,250.00 for Infosys (NS:INFY) Ltd. (INFO:IN) (NYSE: INFY). According to InvestingPro data, Infosys maintains a "GREAT" financial health score of 3.34, with notably low price volatility (Beta: 0.62). UBS highlighted the company's ability to expand its margins by 20 basis points quarter-over-quarter despite facing higher pass-through costs, increased furloughs, cross-currency headwinds, and the addition of new employees.

Infosys' third-quarter performance was notable for not allowing higher pass-through to negatively impact margins, maintaining a healthy gross profit margin of 29.5%. The company's updated revenue growth guidance for fiscal year 2025 suggests a slight decrease quarter-over-quarter in the fourth quarter but still represents a robust year-end compared to fiscal year 2024. With current revenues at $18.8 billion and a PEG ratio of 4.55, InvestingPro analysis suggests the stock is trading at premium valuations relative to its growth rate.

Looking ahead, Infosys is expected to benefit from a recovery in the Banking, Financial Services, and Insurance (BFSI) sector and a resurgence in discretionary spending. Management's comments, along with those from global banks, indicate a potential strong increase in BFSI discretionary spending. The third quarter's total contract value remained stable at $2.5 billion, and the deal pipeline is robust, with growth in both large and small deals. Notably, net new deals grew approximately 60% from the previous quarter, providing solid support for the company's outlook.

UBS suggests that Infosys may exceed expectations in the fourth quarter and has a high chance of outperforming its peers in fiscal year 2026. The maintenance of the Buy rating is based on these positive developments and the robust deal pipeline.

In other recent news, Infosys has experienced significant activity from financial analysts. BofA Securities maintained its Buy rating on Infosys, with a steady price target of INR2,150. The firm's analysis focused on Infosys' third-quarter earnings report, which showed a revenue of $18.84 billion over the last twelve months and an acceleration in Q3 revenue growth to 6.1% YoY.

Infosys' third-quarter EBIT grew a robust 12% YoY, indicating a low influence of third-party items on operating profits. Furthermore, Infosys achieved robust margins at 21.3% and reported an uptick in net new large deal wins in the third quarter.

Infosys has also been the subject of considerable analyst attention. Morgan Stanley (NYSE:MS) maintained an Overweight rating on the company's stock, while Jefferies increased Infosys' stock price target to INR2,250 and raised its earnings estimates by 2-3%. ICICI Securities upgraded Infosys stock from Add to Buy, and Axis Capital (NYSE:AXS) Limited revised its stance on Infosys, elevating the stock from a 'Reduce' rating to an 'Add' status.

These recent developments provide investors with a snapshot of Infosys' performance and strategic moves, including its expanded partnership with Meta Platforms (NASDAQ:META), Inc. for AI innovation.

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

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