TCS hits 52-week high on share buyback hopes
What's the story
Tata Consultancy Services (TCS) is set to consider a share buyback, with the decision to be announced alongside its July-September quarterly results on October 11. This news led to a 52-week high of Rs. 3,659 for TCS shares earlier today, although the stock soon dipped. Morgan Stanley, a foreign brokerage, thinks that the buyback is unlikely to cause the stock to outperform, as the market has been expecting it for the last two quarters.
Details
Comparisons with Infosys and Wipro buybacks
Earlier this year, other IT companies also made similar moves. Infosys completed its share buyback after purchasing 6.04 crore shares for Rs. 9,300 crore in February, while Wipro declared its largest-ever share buyback worth Rs. 12,000 crore in June. With the IT sector facing pressure on quarterly earnings due to slow order wins, all eyes are on TCS's financial performance for July-September.
What Next?
Analysts' expectations for TCS's Q2 results
Morgan Stanley predicts that TCS will show a slight improvement in revenue growth sequentially in the September quarter, as order intake for the IT giant is likely to remain strong. Analysts at B&K Securities anticipate a 1% sequential earnings growth for TCS in Q2, while those at Jefferies expect a 20-40 basis points margin expansion. However, Morgan Stanley's earnings estimates for TCS stand lower than the consensus for FY24-25 due to margin pressures and a pricey stock valuation.
Insights
Morgan Stanley's outlook on TCS stock
Morgan Stanley maintains an 'equalweight' rating on TCS stock with a price target of Rs. 3,730, reflecting only a 3% upside potential from Friday's close. The firm cites the stock's premium to its own average for the last five years as a factor making the risk-reward unfavorable for TCS. Since the market has anticipated the buyback for the past two quarters, the announcement does not give enough assurance to stakeholders, according to Morgan Stanley.
Figures
Take a look at TCS's stock prices
Today, TCS opened at Rs. 3,645.05 per share on the NSE and is currently trading at Rs. 3,654.95 apiece, which is up by 0.92% compared to yesterday. The stock touched a low of Rs. 3,631.05 and has a market cap of Rs. 13.39 lakh crore. On the BSE, it is currently trading at Rs. 3,655.95 (up by 0.96%).