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Infosys Expands Digital Transformation Foothold in Europe

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Infosys (INFY - Free Report) recently announced that it has inaugurated a new Digital Studio in Berlin to expand its presence in the market for digital transformation solutions in Europe.

The new studio is backed by the company’s customer experience and product design subsidiary, Brilliant Basics.

With this move, the company will be able to cater to clients in Germany, Austria and Switzerland, across key industries such as telecom, oil and gas, technology, automotive, engineering and manufacturing.

Digital Transformation — A Key Driver

Infosys has been attempting to strengthen the digital transformation capabilities to expand and strengthen its position in the highly competitive environment. CEO Sahil Parikh has also been focusing more on investments in digital technologies ever since he joined office.

The company's focus on Agile Digital and AI-driven Core services is a tailwind. We note that the company generated 28% of revenues from its digital business in fiscal 2018, which was 26.9% higher year-over-year.

Infosys Limited Revenue (TTM)


Infosys Limited Revenue (TTM) | Infosys Limited Quote

The company’s recent inclusion of creative and customer insights agency, Wongdoody, into its digital family reflects its focus on digital transformation journey.

Further, the recent synergistic partnership between Infosys and Siemens on Internet of Things (IoT) efforts is sure to add value to digital services for customers, primarily in the manufacturing, energy, utilities, healthcare, pharmaceutical, transportation and logistics industries.

Moreover, due to the growth driving nature of the digital transformation trend, an increasing number of companies are expanding their digital capabilities by launching various digital initiatives.

Competition from the likes of General Electric, Google and TCS is driving Infosys to take up digital transformation seriously.

Prospects Look Bright

IDC estimates that 40% of technology spending will be allotted to digital transformations, with enterprises spending more than $2 trillion by 2019.

According to Harvard Business School, leading digital companies report better gross margins (about 55%) than digitally lagging organizations, which generate about 37%.

We therefore believe that the company’s initiatives in this regard will prove to be very beneficial for its top-line growth going forward.

Moreover, a look at the performance of the company shows that these investments are proving to be accretive to the top-line growth of the company.

The stock has consistently outperformed the industry’s 16.3% rise year to date with an average return of 21.5%.


Zacks Rank and Stocks to Consider

Infosys currently has a Zacks Rank #3 (Hold).

A few-better ranked stocks in the broader technology sector are YY Inc. (YY - Free Report) , Science Applications (SAIC - Free Report) and Verint Systems (VRNT - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for YY, Science Applications and Verint is projected to be 26.4%, 5% and 10%, respectively.

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