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Can Infosys Overcome Weak Services Demand?

Its earnings report in contrast to its peers suggests that not only is the company having a difficult time growing revenue, but it is a challenge that may last all the way through the second quarter of 2013. Accordingly, Infosys has had no choice but to offer a weaker outlook than expected from analysts -- trimming its net income forecasts through the first quarter of 2013 from $3.03 per share to $2.97.

Investors have found it increasingly difficult to maintain any level of confidence seeing as the company's lunch is being eaten by the competition. What's more, that Infosys is seeing its margins erode is even less comforting. But if there is anything to feel good about in terms of the company's prospects it is that the market still presents some good growth opportunities.

At some point, IT spending in the U.S. and Europe, Infosys's primary market, has to rebound and the company has as good of a shot as any to capitalize on that recovery. But then again, the competition is just not going to roll over either.

IBM, Accenture and Cognizant are all anticipating this same event. Will Infosys maintain its current strategy or look to expand beyond into emerging markets to boost revenue? Also, what will it do about its declining margins?

Bottom Line

As dire as things may appear for Infosys, I believe the company still has great management and they will overcome this near-term turbulence. In the meantime, I do like the shares at this level and I feel the stock is trading at a discount to both Accenture and Cognizant, which enjoys P/Es that are 3 and 8 points higher respectively.

For that matter, I think the recent dip in the stock presents an excellent buying opportunity for investors looking to play the IT spending rebound, which should show increased signs of recovery by Q2 2013.

At the time of publication, the author held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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