Tuesday, October 10, 2006

Calls of Note Part 4

- Jefferies notes that Infosys Tech (NASDAQ:INFY) will kick off September earnings for the offshore segment of our IT services coverage with FQ2 results early AM Oct 11. Overall, the firm feels that September could represent the best quarter ever not only for INFY but the entire offshore IT sector.

They are upping their estimates above guidance ahead of Sept Q earnings, given belief that the depth and breadth of demand for offshore is actually strengthening from current record levels.

Strong net hiring growth last quarter (up 11% sequentially), coupled with accelerating demand for anything offshore should translate into strong q/q absolute dollar increases to revenue for INFY in September. This view is underscored by June quarter results, which showed sequential acceleration from March. Given the nature of offshore IT services, where growth from new customers ramps steadily over several quarters, they feel follow through from last quarter will be evident in September results.

Firm believes solid results out of INFY should augur well for other industry players, both in terms of financial performance and improving investor sentiment. While other leading players such as Cognizant (CTSH) likely have little to no multiple expansion as part of the investment case, several Tier Two offshore vendors, including Kanbay (KBAY), Patni (PTI and Syntel (SYNT), should also benefit from improving demand and seasonally stronger margins and could experience some multiple expansion from current levels.

INFY tgt goes to $57 from $47.

Notablecalls: Nice call from Jeffco. May see a small pop in INFY early on.

No comments: