Infosys Still Has Best Risk-Reward Among Large Caps

Despite steeper than expected guidance cut, Morgan Stanley is bullish on Infosys Ltd ADR INFY, saying the stock has the best risk-reward among the large caps.

“We think INFY has the best risk-reward within the large caps at 15.3x F18e P/E vs. its 2011 trough of 14.5x and historical average of 18x,” analyst Parag Gupta wrote in a note.

The comments came after Infosys revised its F17 revenue growth forecast to 8–9 percent, which suggested weakness in the second half. The guidance cut came despite the company grew second quarter revenue by 8.2 percent to $2.587 billion, which topped both MS's and the Street's expectations.

Related Link: Infosys Announces Agreement To Provide Engineering Services To Ansaldo Energia

“Some of the issues in consulting, India and Finacle that affected 1Q were addressed, but management indicated potential softness in BFS, retail and consulting going into 2H due to RBS ramp-down, seasonality, and cautious client behavior,” Gupta noted.

“The UK's decision to leave the EU, US elections, and low interest rate regime pose macro risks; however, at 15.3x F18P/E, we believe downside is limited,” Gupta added.

Gupta, who has an Overweight rating on the stock, however, cut the F17/F18/F19 EPS estimate by 1.4 percent, 2.9 percent and 4.1 percent, respectively.

ADRs of Infosys closed Friday’s trading at $15.66, and at last check Monday, the stock was up 0.89 percent at $15.80.

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