IGate Corporation - Growth & Income

IGate Corporation (IGTE) recently delivered its fourth consecutive positive EPS surprise on better than expected revenue growth.

The company recently announced it was acquiring a majority stake in an Indian IT firm. Although investors are nervous about the move, earnings estimates continue to rise. This has led to an attractive valuation picture with shares trading well below industry multiples.

Company Description

IGate offers a comprehensive range of Information Technology solutions. It is headquartered in Fremont, California and has a market cap of $884 million.

Fourth Quarter Results

The company reported fourth quarter earnings per share of 31 cents, beating the Zacks Consensus Estimate by 5 cents. It was an 89% increase over the same quarter in 2009.

Total revenue came in at $81 million, a 55% increase year-over-year.

The gross margin for Q4 was 42.7%, up from 40.6% in Q4 last year. This helped drive a 47% increase in operating income.

Outlook

Earnings estimates have been rising steadily over the last several months.

The Zacks Consensus Estimate for 2011 is $1.05, representing 8% EPS growth. The 2012 estimate is currently $1.21, equating to 15% EPS growth.

It is a Zacks #2 Rank (Buy) stock.

IGate recently announced that it would be acquiring a majority stake in Indian IT firm Patni Computer Systems (PTI). What makes the deal interesting is that Patni is actually larger than IGate in terms of market cap.

This has left many investors concerned that IGate may have bitten off more than it can chew. In fact, the company announced on January 11 that it may take on as much as $700 million in debt and sell up to 10 million new shares to fund the acquisition.

Nonetheless, management expects the deal to be accretive to EPS by 2012.

Fundamentals

The stock has taken two sizeable dips over the last couple months, both related to concerns over the Patni Computer acquisition.

The valuation pictures looks attractive, however, with shares trading at 14.4x forward earnings, a discount to the industry average of 26.4x. Its PEG ratio is only 0.7.

The company also pays a dividend that yields 1.0%.

Although the size of the Patni acquisition makes it particularly risky, it appears that much of the downside risk is already priced into the stock. If the deal goes smoothly, investors could be rewarded handsomely.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
IGATE CORP (IGTE): Free Stock Analysis Report
 
Zacks Investment Research