2024-01-11 09:30:31 ET
Summary
- Infosys Limited met fiscal Q3 EPS estimates and missed revenue estimates by $10 million.
- Infosys secured $3.2 billion in large contracts in Q3, with 71% being net new, indicating potential for recurring revenue.
- The company has improved its cash position by nearly 11% over the last three quarters and is betting big on generative AI.
- However, Infosys stock appears richly valued here at 25 times forward earnings, and I suggest waiting for a pullback before buying.
Infosys Limited (INFY) has just released its fiscal Q3 (period ended December 31) numbers as Seeking Alpha has covered here . The stock is up about 2% pre-market as the company met EPS estimates and missed revenue estimates by $10 million. Does Mr. market like what Infosys had to report? Let's find out in the latest edition of The Good, The Bad, and The Ugly.
The Good
- In Q3, Infosys bagged $3.2 billion in large contracts, with 71% being net new. This follows Q2 where it bagged an impressive $7.7 billion in large contracts and Q1 where it bagged $2.3 billion. The 71% net new is quite significant for consulting companies, as existing clients usually make up bulk of the revenue stream through support and maintenance contracts. In other words, today's new implementation contract becomes tomorrow's support and maintenance contract (aka, recurring revenue).
- Infosys continues guiding for an impressive operating margin, between 20% and 22%. Recently, peers have reported margins in the high teens, and it is impressive for Infosys to better its peers by nearly 5 percentage points in what is deemed a cut-throat service/consulting industry.
- Infosys has improved its cash position by nearly 11% over the last three quarters. The company already had a net positive position on its debt (cash and equivalents minus debt) heading into the Q3 report, and this position appears to have strengthened in Q3.
For further details see:
Infosys Fiscal Q3 Earnings Review: business As Usual, Stock Is A Hold