William L. Moore
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Cantor Reviews Infosys' Yearly Guidance, Cuts Price Target

Infosys Ltd ADR  cut its FY17 constant currency (cc) revenue guidance to 10.5–12.0 percent from 11.5–13.5 percent after lower-than-expected second-quarter results.

Infosys' guidance cut surprised the market, as the software maker stated last month that full-year guidance expectations would be maintainable despite volatile demand.

"We remain concerned regarding Infosys' ability to maintain its margin profile in the face of commoditization and increased competition (pricing pressure)," analyst Joseph Foresi wrote in a note.

Infosys' quarterly EPS of $0.22 was in line with Cantor's estimate, but below the FactSet consensus of $0.23. The company reported revenue of $2.50 billion, versus Cantor's estimate of $2.56 billion and the FactSet consensus for $2.54 billion.

Volume was up 2.2 percent sequentially, but pricing was down 0.3 percent. Gross margin of 36.3 percent was down 10 bp and below Cantor's 36.5 percent estimate.

Infosys attributed the weaker results to headwinds in discretionary spending in consulting services and package implementations and slower project ramp-ups in large deals that were won in earlier quarters.

As such, Foresi cut his FY17 revenue estimate to $10.50 billion, or 10.9 percent constant currency growth, resulting in $0.95 of EPS. The analyst also trimmed his price target by $3 to $17.

"We maintain our HOLD rating as we look for a sustainable catalyst to drive consistency in performance," Foresi noted.