While Infosys Ltd ADR (NYSE: INFY) reported revenue growth for the second quarter, its margins continued to contract, according to BMO Capital Markets.
BMO’s Keith Bachman maintained a Market Perform rating on Infosys, reducing the price target from $12.50 to $12.00.
The IT services landscape remains competitive and challenging and the stock valuation of Infosys appears full, Bachman said in the note.
The company reported double-digit revenue growth for the second quarter, representing a sequential slowdown, although versus a tougher compare, the analyst stated.
While the quarter benefited from Stater acquisition, the figures were impacted by currency headwinds. Benefitting from investments, Infosys kept pace with its peers in the quarter, Bachman noted.
He added, however, that the company’s operating margin contracted by 200 basis points year-on-year and by 120 basis points sequentially. Although utilization, onsite mix and reductions in visa and travel costs helped margins, this was partially offset by prior compensation increases.
Bachman expects Infosys’s margins to contract by 145 basis points to 21.4% in fiscal 2020, and to continue declining in fiscal 2021. He added, however, that the company’s deal pipeline was healthy, which is a “positive indication of future demand.”
Shares of Infosys had declined almost 2.55% to $10.69 at the time of publishing on Monday.
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