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Infosys (INFY) Stock Up 3.5% on Q2 Earnings Beat, Upbeat View

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Infosys (INFY - Free Report) stock closed 3.5% higher on Wednesday after the India-based IT services provider reported better-than-expected second-quarter results and raised its revenue forecast for fiscal 2022. The company’s fiscal second-quarter earnings of 20 cents per share surpassed the Zacks Consensus Estimate of 17 cents and grew 25% year over year.

Infosys’ fiscal second-quarter revenues increased 20.7% to $4 billion year over year and topped the Zacks Consensus Estimate of $3.93 billion. In terms of constant currency (CC), the metric was up 19.4%.

A rise in large deal wins amid the ongoing digital transformation wave were key catalysts. Notably, Infosys continued to fortify its digital capabilities. The Infosys CobaltTM cloud portfolio witnessed solid traction.

Infosys Limited Price, Consensus and EPS Surprise Infosys Limited Price, Consensus and EPS Surprise

Infosys Limited price-consensus-eps-surprise-chart | Infosys Limited Quote

Revenue Details

Digital Revenues (56% of total) climbed 43.1% year over year (42.4% at cc) to $2.24 billion, while Core Revenues (44%) inched up 0.7% (down 1% at cc) to $1.76 billion.

Revenues across India, North America, Europe and the Rest of the World regions recorded year-over-year increases of 4.3%, 23.1%, 22.8% and 8.3%, respectively, on a reported basis. On a constant-currency basis, India, North America, Europe and the Rest of the World registered growth of 4.2%, 23.1%, 19.6% and 4.7%, respectively.

Segment wise, Manufacturing registered the highest growth of 44%. Life Sciences, Financial Services, Communication and Retail jumped 26.1%, 21.8%, 18.9% and 18.8%, respectively. Energy, Utilities, Resources & Services, and Hi-Tech divisions recorded year-over-year revenue growth of 15.9% and 12.1%, respectively. However, sales at the Others business segment declined 8.5%.

The company added 117 clients during the fiscal second quarter. It also signed multiple large deals of contract value (TCV) worth $2.15 billion.

The company reported that its clients worth more than $100 million now add up to 35, up from the first-quarter fiscal 2021 number of 34 clients and 30 clients at the end of the year-ago quarter.

Other Financial Details

Gross profit climbed 11.5% year on year to $1.32 billion. However, gross margin contracted 270 basis points (bps) on a year-over-year basis to 33.1%.

The company’s operating income jumped 12.1% to $941 million, year over year. Operating margin declined 180 bps to 23.6%.

Infosys ended the fiscal second quarter with cash and cash equivalents of $2.43 billion, down from the $2.87 billion recorded at the end of first-quarter fiscal 2022.

Raises FY22 Revenue Outlook

Buoyed by the stronger-than-expected fiscal second-quarter performance, Infosys raised its revenue outlook for the full fiscal year. The company now expects annual revenues to grow between 16.5% and 17.5% year over year at cc, up from the previous forecast of a 14-16% increase. It kept the operating margin guidance range of 22-24% unchanged.

Zacks Rank & Key Picks

Currently, Infosys carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Microsoft (MSFT - Free Report) , STMicroelectronics N.V. (STM - Free Report) and NVIDIA (NVDA - Free Report) , each carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Microsoft, STMicroelectronics and NVIDIA is currently pegged at 11.1%, 5% and 19.5%, respectively.