Will Infosys Earnings Help It Crush IBM And Accenture?

Infosys (NYSE: INFY  ) will release its quarterly report on Thursday, and after big gains in July, the stock has managed to hold its own even in a choppy market environment. But prospects for Infosys earnings look somewhat uncertain, especially in light of headwinds that rivals Accenture (NYSE: ACN  ) and IBM (NYSE: IBM  ) have faced over the past year in their respective IT consulting business segments.

Based in India, Infosys became for many the symbol of the outsourcing trend in America. Yet even as higher labor costs in India and other traditionally low-wage areas has reduced the profitability of outsourcing generally, information technology consulting has remained important as trends in technology become increasingly complex and essential for business success. With some early signs from its peers that the consulting business could finally have hit bottom and turned back upward, can Infosys restore earnings growth? Let's take an early look at what's been happening with Infosys over the past quarter and what we're likely to see in its report.

Stats on Infosys

Analyst EPS Estimate

$0.70

Change From Year-Ago EPS

(6.7%)

Revenue Estimate

$2 billion

Change From Year-Ago Revenue

11.3%

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Can Infosys earnings keep its growth going?
Analysts have had mixed views on Infosys earnings recently, cutting $0.02 per share from their September-quarter views but boosting their full-year fiscal 2014 projections by the same amount. The stock has moved up dramatically, rising 18% since early July.

Most of the upward momentum Infosys has enjoyed came after its fiscal first-quarter report in July. The company topped estimates on the strength of its North American operations, which provide the majority of its earnings. Elsewhere, sluggish economic conditions, especially in Europe, held Infosys back. But even though infrastructure spending has been weak lately, Infosys leaders note that many contracts have been up for new bids lately, giving Infosys a chance to create new relationships with potentially lucrative customers.

But elsewhere in the industry, weakness has raised questions about whether Infosys can continue bucking the trend. Back in August, IBM got downgraded on concerns that both it and Accenture were seeing pressure on revenue from a fully mature IT-consulting industry. Even though Accenture managed to post an increase in consulting revenue in its most recent quarter, it refused to commit to the idea that growth would be sustainable in the long run.

The key question Infosys faces is whether a rebound in consulting and outsourcing is in the cards. Last week, analysts at Morgan Stanley noted that Accenture and IBM have done better in the outsourcing segment, and more solid demand from Europe could point to a long-awaited turnaround there. Unlike IBM and Accenture, Infosys and rival Cognizant Technology are both purer plays on the business. Moreover, Cognizant and Infosys are smaller than IBM and Accenture and therefore have greater upside potential when the industry rebounds.

In the Infosys earnings report, watch to see whether the company confirms some of the uptrends that Accenture highlighted. A firm turnaround could do a good job in lifting shares back toward their highs from early 2011.

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