The Oxen Report: We Are Headed Overseas for Today’s Overnight Trade of the Day

January 11, 2010

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Oxen Report Readers,

Tomorrow, one of the leading technology service/IT companies out of India will be releasing their quarterly earnings. That company is Infosys Technology Services Inc. (INFY). The company is one of the leading Indian IT companies and is part of India’s Fifty Nifty. The company is a newer company that has only been on the Nasdaq for ten years. In that time, though, the company has grown over 5500%. The company has been a consistent technology outsourcer, doing 2/3 of its business with American companies. I believe this company could be a gem for tomorrow’s market with what I see as an underestimated EPS estimate and the possibility for a large beat.

INFY has an EPS estimate of only 0.51, but in the past four quarters, the company has reported EPS of 0.58, 0.56, 0.55, 0.56, respectively. The company is estimated to come down 0.07 on its EPS. That would be a decline of 12% in earnings, whereas, in the last quarter the company only saw a decline of 1% in earnings. The company, at the same time, could definitely continue to decline at a higher rate. Yet, we have to remember one year ago at this time, we thought the world was going to end. The company, in fact, in its last quarter before the one they are reporting tomorrow, hired on new employees and gave nearly all employees pay raises. For me, this is a sign of health in a company. One that is on its way back on the upswing. Further, in the last quarter, the company reversed its forecasts from a FY loss of an EPS of 11 to a gain nearly 7. This is a company that is definitely seeing a return to business. There is very little reason to expect such a downward trend.

The Indian economy had a very good last three months in the Jakarta Composite, moving up just under 10%. The Indian economy has seen a definite return to shape, and I think that should be reflected in one of the company’s leaders. This company is simply getting an underestimate and represents a stellar value investment. Going into the earnings, investors are not expecting much as the stock has dropped 5% over the past week and is slightly red today. Yet, after the last earnings, the company jumped 20%. The selling off has presented a great discount to a stock that I think is pretty shiny.

Technically, the drop has also made the stock somewhat underbought and moved towards its bollinger band. That technical set up will allow for a pop to occur at a higher magnitude than if the stock was overbought. Holders of this stock have left it over the past week, and a beat will get them to flock back to it. A lot of investors are taking their profits (as they should) going into the earnings, and that has allowed the opportunity for us.

The final piece of information is that since November, information technology service companies have beaten estimates 8 out of 11 times. The sector is definitely starting to get its legs back under it, and I am expecting good things from INFY.