Shares of Infosys Ltd ADR (NS:INFY) gained over 1% in early U.S. trading Tuesday after analysts at BofA Securities upgraded the stock, citing a 2025 demand recovery.
The Infosys stock rating was lifted to Buy from Neutral, and the price objective was raised to INR 1,785 (U.S. $21.50) from INR 1,735, offering 21% upside from current levels.
While still early for a 2025 outlook, analysts see IT services demand coming together next year, citing: "(1) Normalization of the post-Covid spike in IT spends could be done with by mid CY24, (2) Meeting Basel III requirements is expected to drive up regulatory tech spends by banks, (3) SAP upgrade deadline becoming more of a priority for enterprises amidst the 2027 support deadline and (4) Our take that transformational IT spends could see an uptick post US elections."
Meanwhile, analysts said the upcoming earnings will provide the last cut and see a floor for calendar 2024 earnings.
"In our view, buyside CY24/FY25 expectations are already down to about 5% revenue growth and flattish EBIT margin, post Accenture’s print," analysts commented. "We think that the upcoming earnings / guidance next week (we expect another soft quarter) could provide the final cut / floor to earnings outlook, given our assessment of (1) 2% tailwind from mega-deals that are already in the bag and (2) low risk of meaningful headwinds to discretionary spends from current levels."
With shares of Infosys underperforming the NIFTY by 8%/22%/40% since the start of CY24/CY23/CY22, respectively, analysts added that the stock's valuation affords the case for their upgrade today.
Commenting on Infosys' AI efforts, analysts highlighted that the company is in the early days but will likely be a participant, pointing out a recent collaboration with Handelsblatt group.