Analysts Turn More Bullish On Cognizant, Infosys

The Indian IT outsourcing stocks have been coming under some pressure lately from the appreciation of the rupee against the dollar, which has the effect of reducing margins for the companies, which have a large number of rupee-compensated employees. Nonetheless, a number of analysts came out Monday and pounded the table on the sector, asserting that the concerns over the rupee are already in the stocks.

Bank of America’s Abhishek Gami Monday repeated his Buy rating on Infosys (INFY), asserting that the pressure on the stock from currency concerns have created an attractive entry point. “We believe investors are too bearish because of concerns over margin pressure from currency appreciation and fears about slowing demand,” he wrote in a research note. He expects Infosys to beat its guidance for the fiscal first quarter ending June. His price target on the stock remains $66.

Jefferies & Co.’s Jospeh Vafi wrote a similar note about Cognizant (CTSH), asserting that the rupee-related sell off in the stock has created a “buying opportunity” in the stock. He says the company’s margins are hit 20-25 basis points for every 1% appreciation of the rupee, compared with 40 basis points for Infosys. He says the stock “has over-reacted to the rupee strength” and to a recent slight trim in its 2008 hiring plans. He says the company is “in a solid position to once again exceed its guidance for Q2.” Vafi maintains his Buy rating and $100 price target.

Pacific Crest’s Kanchana Vydianathan raised her rating on Cognizant to Outperform from Sector Perform, setting a price target of $99. She also notes that Cognizant, Infosys and Satyam (SAY) are already trading below their historical five-year forward P/E estimates. “We believe that concerns about the appreciation of the rupee have already been priced into the stock and ADR prices of the Indian IT services companies, which has results in depressed valuations,” she writes.