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The Key Earnings Drivers for Infosys

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What’s driving EPS growth?

Infosys (INFY) has witnessed stable bottom-line growth in the last five quarters, buoyed by higher global IT spending trends. Moreover, the signing of new deals coupled with strong revenue growth across all its operating segments resulted in EPS (earnings per share) growth for the company. The launch of the Tax Cuts and Jobs Act may drive the company’s EPS growth going forward.

From the graph above, we can see the growth of the Infosys’s EPS since 3Q17. During this period, Infosys’s bottom line has increased at a CAGR (compound annual growth rate) of 9.9%. Its EPS in fiscal 3Q18[1. fiscal 3Q18 ended December 31, 2017] stood at $0.35 against $0.24 in fiscal 3Q17.

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Analysts’ estimates and headwinds for EPS growth

The average net revenue estimate provided by analysts for fiscal 4Q18[2. fiscal 4Q18 ending March 31, 2018] is $0.25, and the average net revenue estimate for fiscal 2018 is $1.10.

Despite strong revenue growth, the rising operating expenses may act as headwinds for the company going forward. These expenses were triggered by the higher costs associated with the launch of new products coupled with selling and marketing expenses. The rollout of higher compensation plans for its middle and senior management teams may put pressure on the company’s EPS going forward.

Among its industry peers, Microsoft (MSFT) and International Business Machines (IBM) reported their financial results on January 31 and January 18, respectively. The EPS for Microsoft in fiscal 2Q18 stood at $0.96, and IBM’s EPS in fiscal 4Q17 came in at $5.18.

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