TCS Q1 Results Review: Buy, Sell Or Hold? Analysts Mostly Bullish Despite Weak Earnings
TCS, post-recent underperformance, appears to be attractive trading at 21.5 times FY27 price-to-earnings and in line with its long-term average multiple, Nuvama noted.
Tata Consultancy Services Ltd. still has favour among analysts, despite a weak start to the current financial year.
Consolidated net profit for the quarter ended in June rose 4% to Rs 12,760 crore, meeting the Bloomberg consensus estimate of Rs 12,253 crore. Revenue fell 1.6% sequentially to Rs 63,437 crore, also in line with the forecast of Rs 64,655 crore.
TCS saw a contraction in demand for IT services in Q1 despite booking orders worth $9.4 billion. The company's order pipeline, which consists of advanced-stage deals, has either been deferred or paused as clients have become more cautious with spending.
"We expect the demand environment to stay challenging in the next one–two quarters due to macro uncertainty," analysts at Nuvama said in a note. "However, we stay positive on the medium-to-long-term outlook, as technology debt is very high for enterprises, which will warrant a revival in spending as macro improves."
Citi expects slowing growth to put pressure on premium multiples and estimates TCS's earnings will grow at a 3% CAGR in three years. "The company's cost optimisation efforts have helped deliver relatively good margin performance," the brokerage said.
TCS Stock Calls
Out of the 50 analysts tracking TCS, 34 have a 'buy' rating on the stock, 12 recommend a 'hold' and four suggest a 'sell', according to Bloomberg data. The average of a 12-month analyst price target of Rs 3,755 implies a potential upside of 11%.
TCS, post-recent underperformance, appears to be attractive trading at 21.5 times FY27 price-to-earnings and in line with its long-term average multiple, Nuvama noted.
Jefferies said the absence of revenue growth in the near term should limit PE re-rating unless the US economic growth outlook improves. Citi said PE remains the most appropriate valuation measure given TCS's past profitability and future earnings visibility.
Top stock calls:
CLSA: 'Accumulate' with target ptice of Rs 4,279.
Jefferies: 'Hold' with target price of Rs 3,480.
Morgan Stanley: with target price of Rs 3,690.
Nuvama: 'Buy' with a target price of Rs 3,950.
Goldman Sachs: 'Buy' with target price of Rs 3,870.
Citi: 'Sell' with target price of Rs 3,135.
TCS share price closed flat at Rs 3,382 apiece on the NSE, ahead of the results on Thursday.
The stock has fallen 13% in the last 12 months and 17% on a year-to-date basis.
