Will Murthy's Return Help Infosys' 1Q Earnings? - Analyst Blog

By Zacks | July 10, 2013 AAA

Infosys Ltd. (INFY) is set to report first quarter 2014 results on Jul 12, 2013. The company posted a 5.41% positive surprise last quarter. Let’s see how things are shaping up for this announcement.

Factors to Consider

Infosys reported a modest fourth quarter. Going forward, margin contraction will remain a concern as the company expects to continue with its flexible-pricing policy. Moreover, Infosys’ full-year guidance reflects sluggish revenue growth amidst a volatile macroeconomic environment, which is expected to hurt profitability in the near term.

However, the reappointment of Narayana Murthy comes as a relief amid a time when the company has been suffering declining profits for the past eight to ten quarters. Murthy, who was the co-founder of the company, had a huge role to play in the company’s success by identifying and achieving new growth areas and new business opportunities. Since he vacated office in 2011, Infosys went through a rough patch and failed to retain the same level of performance. Also, the company failed to procure new contracts due to economic uncertainty. In addition, employee dissatisfaction also became a concern.

Earnings Whispers?

Our proven model does not conclusively show that Infosys is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings Expected Surprise Prediction (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP: That is because the Most Accurate Estimate stands at 68 cents while the Zacks Consensus Estimate is higher at 69 cents. That is a difference of -1.45%.

Zacks Rank #4 (Sell): Infosys has a Zacks Rank #4 (Sell), which lowers the predictive power of ESP because the Zacks Rank #4 when combined with a negative ESP makes surprise prediction difficult.

Other Stocks to Consider

Some other companies operating in the same industry that you may want to consider as our model shows it has the right combination of elements to post an earnings beat this quarter:

Angie’s List Inc. (ANGI) with an Earnings ESP of +12.00% and Zacks Rank #1 (Strong Buy)

Informatica Corporation(INFA) with an Earnings ESP of +13.04% and Zacks #2 Rank (Buy)

Synaptics Inc. (SYNA) with an Earnings ESP of +12.50% and Zacks Rank #2 (Buy)

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