We recently downgraded leading business consulting,
technology, engineering and outsourcing services provider company
) to Underperform based on its poor performances during last few
Why the Downgrade?
The company's fourth quarter 2013 earnings were down 3.7% year
over year and 2.6% sequentially. Year-over-year earnings were
impacted by a decline in margins and challenging global economic
conditions. Operating margin also contracted 623 basis points
year over year to 23.6% from 29.8% in the comparable prior-year
The decline in margin was primarily attributable to the
company's liberal pricing strategy to improve volumes and sales
going forward. With this, the company's future outlook also looks
endangered with revenue guidance lower than 12%-14% growth of the
industry as predicted by the industry body Nasscom.
Infosys operates in a highly competitive and rapidly changing
market. The company expects intensified competition from
established companies like
) and Deloitte and from new entrants in the market. In
particular, the company expects increased competition from firms
that strengthen their offshore presence in India or other
low-cost locations and from firms in market segments that Infosys
has recently entered.
Infosys has been witnessing falling earnings estimates on the
back of modest fiscal fourth-quarter 2013 results and low
earnings growth guidance for fiscal 2014. The Zacks Consensus
Estimate for the upcoming quarter decreased by a penny to 70
cents as most of the estimates were revised lower over the last
Other Stocks to Consider
Infosys reported a modest fourth quarter and margin
contraction will remain a concern going forward as the company
expects to continue with its pricing policy. Moreover, Infosys'
full-year guidance reflects sluggish revenue growth amid a
volatile macroeconomic environment, which is expected to hurt
profitability in the near term.
Infosys currently has a Zacks Rank #4 (Sell) on the stock. Two
other companies operating in the same industry include
), with Zacks Rank #1 (Strong Buy), while
iSoftStone Holdings Ltd
) has Zacks Rank #2 (Buy)
ACCENTURE PLC (ACN): Free Stock Analysis
INFOSYS LTD (INFY): Free Stock Analysis
ISOFTSTONE LTD (ISS): Free Stock Analysis
UNISYS (UIS): Free Stock Analysis Report
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