Infosys Secures $2B Contract, Sets Positive Tone Amidst Accenture and TCS Reports: Analyst

Stifel analyst David M. Grossman had a Hold rating on Infosys Limited  INFY with a price target of $17.00.

Today before the close, INFY announced a 5-year $2 billion preliminary contract agreement with an existing client. 

Grossman estimated this contract represents a ~70bp revenue growth tailwind in FY24 (March) and ~150bp in FY25 (6-month ramp). 

This contract increases confidence that INFY can achieve consensus FY24 revenue (4.5%-5.0% cc, guidance 4-7% cc) though growth is likely more back-end weighted. 

Conversely, it increases the analyst's conviction margin expectations may be high (he assumes down 30bp Y/Y, versus consensus +30bp and guidance +/- 100bp), though the EPS impact is small given the share count. 

Expectations into Thursday's 1Q EPS report diminished following reports from Accenture Plc ACN and Tata Consultancy Services, and INFY's EPS multiple is a mid to high-teens discount to ACN and TCS versus low-mid teens usually. 

While INFY's increasing dependence on mega-deals to grow increases revenue volatility and margin risk, the set-up into 1Q has improved, and this contract will be seen positively near term, given heightened visibility in an uncertain macro environment. 

Price Action: INFY shares traded higher by 3.38% at $17.88 on the last check Tuesday.