Tata Consultancy reported a poor set of results that lagged estimates for quarter ending Sept 30, 2016. Not many are happy with the way results have panned out in the software sector. Here is what some brokerages are saying to do with the TCS stock.
A hold rating
Broking firm Edelweiss has maintained a hold rating on the stock of TCS. "We believe, the tepid 0.3% revenue growth, even assuming some course correction in H2, implies sub-7% USD growth for FY17 with concerns in key verticals such as BFSI and Retail & CPG. Although TCS has demonstrated ability to maintain margin in a narrow band despite revenue underperformance, in the process it has exhausted margin levers. Hence, margin improvement will be a herculean task in the absence of revenue growth. We maintain ‘HOLD/SP' with revised target price of INR2,320 (16x FY18E EPS; INR2,410 earlier). The stock is trading at 17.5x and 16.1x FY17E and FY18E EPS, respectively," the research report has said.
Arihant Capital has a hold rating on the stock of TCS. "We believe TCS will improve its performance with consistent client wins and cautious about global scenario. We are optimistic on company's transformation on digital platform. We have valued stock at P/E(x) of 17x to its FY18E earnings and have arrived at fair value of Rs 2,584 per share. We have ‘HOLD' rating on the stock, the firm has said in research report.
J P Morgan
J P Morgan has an equal weight in the stock. "So, TCS's continually moderating revenue growth does not necessarily help sustain P/E given our empirical observation that P/E multiples for high P/E stocks such as TCS are far more sensitive to top-line led growth than margin-led growth," JP Morgan report has said. Check stock quote of TCS here
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