Option Trade – Infosys Ltd ADR (NYSE:INFY) Puts
Wednesday, April 12, 2017

** OPTION TRADE: Buy the INFY JULY 21 2017 14.000 PUT at approximately $0.45. Place a pre-determined sell at $0.90.

Note: No protective stop losses added -- but if you wish to do so make it $0.20.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey   

India-based IT behemoth, Infosys Ltd ADR (NYSE:INFY), is slated to report fourth-quarter fiscal 2017 results after the closing bell today, Apr 12, 2017.

The company has had a mixed earnings history, having met estimates twice, with one beat and one miss in the trailing four quarters.

Analysts expect Infosys to report $0.24 EPS. They anticipate $0.01 EPS change or 4.35% from last quarter’s $0.23 EPS. INFY’s profit would be $542.74 million giving it 15.74 P/E if the $0.24 EPS is correct. After having $0.24 EPS previously, Infosys Ltd ADR’s analysts see 0.00% EPS growth

Last quarter, Infosys beat estimates by 4.4%. However, this quarter is not on the positive side – Infosys' cautious outlook, as evident from two back to back guidance tweaks, implies limited chances of growth. Rapid proliferation of customizable internet-based software has been hampering Infosys' traditional outsourcing business. The company may have to contend itself with precipitous decline in client spending that has plagued its financial results in the recent past. Most clients now prefer to seek service delivery through digital technology, thus adding to Infosys' woes.

In addition to this, the new administrations focus on on-shore business model, with more local hiring; have sent the Indian IT industry into a panic mode.  To make the most of changing times, majority of the companies including Infosys are reworking their existing policies, which are likely to impact the upcoming fourth-quarter margins adversely. Moreover, the constant strengthening of the Rupee against the U.S. dollar is also likely to act as a major spoilsport.

In fact, the company's drab outlook is largely attributable to the currency headwinds. Concurrent with its third-quarter fiscal 2017 results, the company narrowed its guidance for revenue growth for this fiscal year to 8.4%-8.8% from the previous 8-9.0%, thus signaling bleak times ahead.

Infosys’s 50 day moving average is $15.39 and its 200 day moving average is $15.04. The firm has a market capitalization of $35.14 billion, a P/E ratio of 16.4960 and a beta of 0.90. Infosys has a 1-year low of $13.42 and a 1-year high of $20.47.

Influencing Factors to Consider               

Five out of Infosys Ltd ADR’s (NYSE:INFY) seven original founders — NR Narayan Murthy, Nandan Nilekani, SD Shibulal, Kris Gopalakrishnan and K Dinesh — are now promoters of the company and none of the seven hold any board seats. These seven collectively represent an influential 12.75% stake in the company and have been questioning the executive compensation structures approved by the company’s board of directors.

One of leading IT consulting companies based out of India, Infosys has been a trendsetter, popular for its corporate strategies and steep growth trajectory. Of late, though, the board has faced strong criticism over a range of issues related to executive compensation — over the large severance packages given to former CFO Rajiv Bansal and Counsel David Kennedy, followed by letters which accused irregularities to the tune of $200 million in the company’s Panaya deal.

Long-term investors have demonstrated a strong belief in the company founders as evidenced by Mr Murthy’s return from retirement prior to the appointment of acting CEO Vishal Sikka mid-2014. His criticism and a majority of small institutional shareholders voting against the decision has put further pressure on Infosys shares amid multiple headwinds such as Trump administration’s H1B visa overhaul that can increase the cost of labor and Brexit, which already has been affecting the industry due to a weaker sterling.

Media coverage about Infosys has trended somewhat negative recently, according to Alpha One Sentiment Analysis. Infosys earned a media sentiment score of -0.02 on Alpha One’s scale. Alpha One also assigned news stories about Infosys as an impact score of 60 out of 100, indicating that recent press coverage is somewhat likely to have an impact on the stock’s share price in the next several days.

Analysts and Hedge Funds Opinions

Several brokerages have issued reports on the company….

  • Zacks Investment Research cut shares of Infosys from a “hold” rating to a “sell” rating in a report on Wednesday, January 11th.
  •  BMO Capital Markets reiterated a “hold” rating and issued a $15.00 price target on shares of Infosys in a research note on Thursday, March 23rd.
  • Goldman Sachs Group Inc assumed coverage on shares of Infosys in a research note on Friday, March 3rd. They issued a “sell” rating on the stock.
  • Finally, CLSA cut shares of Infosys from an “outperform” rating to an “underperform” rating in a research note on Friday, January 6th.

Two research analysts have rated the stock with a sell rating, twelve have given a hold rating and two have assigned a buy rating to the company’s stock.

Infosys presently has a consensus rating of “Hold” and an average price target of $15.50.

 Harvey’s Options Volatility Indicator


Infosys Ltd has declined 5.16% since September 1, 2016 and is down-trending. It has underperformed the S&P500 by 13.66%.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the INFY JULY 21 2017 14.000 PUT at approximately $0.45. Place a pre-determined sell at $0.90.

Note: No protective stop losses added -- but if you wish to do so make it $0.20.

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