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Infosys to Report (INFY) Q1 Earnings: Is a Beat in Store?

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Infosys Limited INFY is set to report fiscal first-quarter 2019 results on Jul 13.

The company beat the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average positive surprise of 3.13%.

In the last reported quarter, the company's earnings per share of 26 cents topped the Zacks Consensus Estimate of 25 cents and also came ahead of the year-ago figure of 24 cents.

Revenues increased 9.2% year over year to $2.81 billion and beat the Zacks Consensus Estimate of $2.77 billion. In terms of constant currency, revenues were up 6.4%.

Let’s see how things are shaping up for the upcoming announcement.

Factors at Play

Infosys is benefiting from the application of artificial intelligence (AI) and automation which is driving its legacy business. The company is also drawing strength from growth of its digital business, which per management is “growing at a very strong pace much ahead of the overall growth of the company.”

Infosys’ investments in new services, particularly in Cloud Ecosystem, Big Data and Analytics, API and Micro services, Data and Mainframe Modernization, Cyber Security and IoT Engineering Services are tailwinds.

Growing adoption of the company’s offerings is also evident from the lucrative client wins in the last reported quarter. Notably, the company won 10 prominent deals with a total contract value (TCV) of $905 million.

Strong demand for financial services in areas like digital, cloud, RPA, AI and automation is a key driver. The company’s growing traction among banks, more specifically Indian banks in the United States and European banks is promising. Moreover, demand from healthcare and insurance industry also makes us optimistic.

However, the company’s compensation revision of around 85% of the workforce effective Apr 1, with a higher variable pay and incentives is likely to put pressure on margins.

Moreover, an unfavorable political climate in the United States and difficulties in adapting to the changing political climate in the region are a direct threat to the company’s economical cost structure, which focuses on using its workforce on sites located abroad.

Infosys Limited Price and EPS Surprise

Infosys Limited Price and EPS Surprise | Infosys Limited Quote

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Infosys has a Zacks Rank #3 and its Earnings ESP is +0.90%. Therefore, our proven model shows that the company is likely to deliver a positive surprise this quarter.

Other Stocks With a Favorable Combination

Here are some companies, which, as per our model, also have the right combination of elements to post an earnings beat this quarter:

YY Inc. YY has an Earnings ESP of +2.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Workday, Inc. WDAY has an Earnings ESP of +8.62% and a Zacks Rank #2.

NVIDIA Corporation NVDA has an Earnings ESP of +0.48% and a Zacks Rank #3.

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