On Monday, Deutsche Bank adjusted its outlook for WNS Limited (NYSE: NYSE:WNS) shares, reducing the price target from $70.00 to $64.00 while still holding a positive Buy rating.
The revision comes after WNS disclosed the loss of a top 5 customer, prompting the bank to update its model and decrease its FY25 revenue growth expectations to approximately 4.6% on a constant currency basis, which is currently the lowest estimate among analysts.
The bank acknowledges that WNS is navigating through a mix of macroeconomic and unique challenges, and it does not anticipate an improvement in IT services spending for the calendar year 2024 since WNS's last report. Despite these hurdles, Deutsche Bank has chosen to maintain its FY24 earnings projections and has revised its FY25 and FY26 earnings per share (EPS) estimates downward by $0.14 and $0.24, respectively, to $4.51 and $5.09.
The analyst from Deutsche Bank suggests that WNS could potentially see a significant pickup in growth in the latter half of FY25, contingent on favorable conditions such as an increase in discretionary demand, travel volumes, and the ramp-up of insurance captive.
With these factors in mind, the firm anticipates that WNS may set initial growth guidance with the upper end in the high single digits on a constant currency basis. The recommended starting point for annual growth expectations is around 3-8% on a constant currency basis, allowing for flexibility to adjust to second-half macro trends in FY25.
In light of the revised earnings estimates and the recent decline in peer group valuation multiples, Deutsche Bank has set the new price target at $64, which is approximately 13 times the projected CY25 EPS. The Buy rating is maintained, indicating the firm's continued confidence in WNS's stock despite the recent customer loss and other headwinds.
InvestingPro Insights
In the wake of Deutsche Bank's revised financial outlook for WNS Limited, current InvestingPro metrics provide additional context for investors. WNS's market capitalization stands at approximately $2.37 billion, with a P/E ratio of 15.47, suggesting a valuation that may be appealing to value-oriented investors. The company's PEG ratio of 0.76 indicates potential for investment growth relative to its earnings growth, which could be a positive signal for those looking at the company's future prospects.
Two InvestingPro Tips highlight that WNS has a perfect Piotroski Score of 9, reflecting strong financial health, and that management has been actively buying back shares, which could be interpreted as a sign of confidence in the company's value. Furthermore, the company is trading at a low P/E ratio relative to near-term earnings growth, which may be particularly relevant for investors considering the recent adjustment of WNS's financial outlook by Deutsche Bank.
Investors seeking more comprehensive analysis can find additional InvestingPro Tips for WNS at https://www.investing.com/pro/WNS. There are 7 more tips available, which can be accessed with the use of coupon code PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
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