Infosys Earnings: An Early Look

Earnings season has begun. On Thursday, Infosys (INFY -0.18%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise.

Infosys was the poster child for the outsourcing trend during its initial rise to prominence, but the IT services company has emerged as a powerhouse in its own right. But as emerging-market growth has slowed, will Infosys be able to hold onto its 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 quarterly report.

Stats on Infosys

Source: Yahoo! Finance.

Will Infosys keep serving up profits to investors?
In recent months, analysts have changed their views on Infosys in both directions, cutting their estimates on the just-ended quarter's earnings by $0.01 per share but boosting their full-year fiscal 2014 calls by $0.05. The stock, though, has seen a positive move, with the shares up more than 20% since the beginning of the year.

For years, Infosys benefited from the trend toward outsourcing IT services rather than attempting to manage technology in-house. Yet recently, Infosys hasn't been as certain about its future, as it reined in its enthusiasm in its otherwise favorable report last quarter by giving only "cautiously optimistic" guidance about its first-quarter prospects. Rival Accenture (ACN -1.45%) noted that its growth rate in its Asia-Pacific region was much slower than its Americas-based growth, although its outsourcing business overall has been much healthier than its general consulting segment.

Infosys has faced increased competition coming from both the U.S. and Southeast Asia. Accenture's outsourcing business is a major rival, but domestically focused Cognizant Technologies (CTSH -1.13%) has also done its best to play to its home-field advantage by attracting U.S. customers seeking to keep their outsourcing closer to home. Meanwhile, Indian firm Wipro (WIT -0.55%) is still a big rival for Infosys in its home market, as it competes for talent and acts as a check on Infosys's ability to take advantage of cheaper Indian labor costs to widen its profit margins.

In an interesting twist, Infosys announced last month that it would insource jobs back into the U.S. by adding 200 new staffers in its facility near Atlanta. Given the growth that the southeastern U.S. has experienced over the past decade, Infosys has targeted a lucrative area for expansion, and it expects additional job openings in the near future.

In its earnings report, watch for Infosys to provide a gauge not just of its own business but of the IT outsourcing and consulting markets generally. Any jump in activity could bode well for Infosys and for the technology industry overall.

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