Infosys (NSE: INFY) Stock Price Outlook 2019: Buyback Offer Attractive?

Infosys shares reacted positively to the reports that the company may consider coming up with the proposal of share buy back  of worth $1.6 billion at its January 11th meeting. It is expected that  Infosys could buy shares at a premium of about 20%-25% to the company’s stock current market value, and it is anticipated that this proposal could see some founding members tendering their shares.

Infosys Buy Back of Shares

Meanwhile, the likely buy back of shares is part of the company’s commitment in April in 2018 to return $2 billion to shareholders from the company’s cash reserves, and reiterates Infosys’ low-risk approach to acquisitions. It is considered that if the company  is growing at CAGR of 7-8% and if the company does not intend to go for big acquisitions, the best way is considered is buy back of shares.

As per TV Mohandas Pai, who is a former chief financial officer and director at Infosys, this buyback would mean, that the shareholders of the company are given the preference, and the company’s value would increase with higher earnings per share.

Further he added, Instead of keeping cash in the balance sheet earning 5-6% interest, it is better to give it back. Once companies with good cash flows become big, they cannot grow at high rates. If they buyback equity time to time, EPS goes up and the value of the company increases. I think it is good news.

Furthermore, share repurchase is considered as a tax-efficient way to return money to the shareholders compared to a large one-time dividend. In November 2017, the company had come up with first ever share buyback in the 36-year long history where the company had bought more than 11.30 crore shares for a price of Rs 1,150 per share for an aggregate amount of Rs 13,000 crore.

Infosys is coming off a one-year moratorium for the share buyback that ends this month as per stock market regualion. The companies that had participated in  December 2017 share buyback programme were LIC, Singapore government, Sudha Gopalakrishnan (wife of co-founder S. Gopalakrishnan) and Rohan Murty (son of co-founder N.R. Narayana Murthy’s son) among others.

 Recommendation

Infosys is investing in AI and cloud technologies from about two years ago, and already has its AI platform called Nia, which the company had launched in April last year. The company has delivered strong performance in Core verticals (BFSI/Retail at 5.8/5.9 per cent QoQ) and is growing actively in Manufacturing and Hi-tech verticals. The investors should continue to “hold” the stock with the price target of Rs.800

 

Disclaimer: The content is provided for informational purpose only and not a financial advice. Investor should not rely on the content to make any investment decision.