Infosys (INFY) Beats On Q3 Earnings & Revenues, View Intact

Infosys Limited (NYSE:INFY) has braved formidable odds like contracted IT spending and unfavorable political climate in the United States to deliver earnings beat in third-quarter fiscal 2018.

The company reported earnings per American Depository Share (“ADS”) of 35 cents for the quarter, which topped the Zacks Consensus Estimate of 25 cents and was up 45.8% on a year-over-year basis. The bottom line benefited from a solid top-line performance and diligent operational execution.

Quarterly Details

Revenues increased 8% year over year to $2,755 million and topped the Zacks Consensus Estimate of $2,740 million. In terms of constant currency, revenues were up 5.8%.

Top-line growth can be attributed to lucrative client wins and impressive traction of new high growth services and software business. The company’s Renew New Strategy is proving to be a solid growth driver, helping in adding more clients. The company added 79 new clients in the quarter.

Infosys’ investments in new services, particularly in Cloud Ecosystem, Big Data and Analytics, API and Micro services, Data and Mainframe Modernization, Cyber Security and IoT Engineering Services have been showing promising results. In the reported quarter, the company’s offerings have seen increased traction with clients, and contributed 9.9% of the quarterly revenues.

Infosys’ operating profit rose 4.5% year over year to $669 million. Strong focus on operational improvement helped maintain operating profits, despite strong headwinds.

Renew New Strategy Progresses Well

Infosys has been diligently following the “Renew New” program, which lays the blueprint of its long-term growth. The company’s three distinguished offerings — Artificial Intelligence, Knowledge-based IT and Design Thinking — are proving to be key profit churners, aiding in market share expansion.

Under the “Renew” initiative, Infosys helped clients renew traditional IT services and infrastructure. Meanwhile, the company has been recording robust momentum in software and services business under the “New” initiative. The company’s integrated artificial intelligence platform — Nia — continued its positive momentum in the quarter and featured in several large new deals.

Liquidity

As of Dec 31, 2017, Infosys had cash and cash equivalents of $3,226 million compared with $3,884 million recorded a year back.

Outlook

Concurrent with fiscal third-quarter results, Infosys reiterated earlier guidance for fiscal 2018. The company continues to expect revenue growth in the range of 6.5-7.5%. The figures are in USD terms, based on the exchange rates as of Dec 31, 2017.

Our Take

Infosys has been diligently following the “Renew New” program, which lays the blueprint of its long-term growth. This strategy, which includes restructuring of customer-centric functions, streamlining of sales function, unification of delivery systems and redesigning of other fee and oral processes, is proving to be highly beneficial allowing the company to counter major challenges.

Moreover, the company’s lucrative client wins and solid operational execution are expected to drive growth for the rest of the fiscal year. Also, its partnership with leading technology providers like Microsoft Corporation (NASDAQ:MSFT) and Amazon.com, Inc. (NASDAQ:AMZN) are anticipated to unlock fresh growth opportunities.

Despite these positives, the Zacks Rank #3 (Hold) company’s growth momentum may be thwarted on account of unfavorable political climate in the United States. In the past few months, Infosys has been struggling to adapt itself to the changing political climate in the region. This is a direct threat to the company’s economical cost structure, which focuses on using its workforce on sites located abroad.

A better-ranked stock in the industry is Nutanix Inc. (NASDAQ:NTNX) . This Zacks Rank #2 (Buy) company has beaten estimates in the trailing four quarters, with an average positive earnings surprise of 18.5%, You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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