TCS shares jump over 3% as Q3 earnings beat Street estimates. Should you buy?

Tata Consultancy Services (TCS) shares jumped over 3% following its Q3 results. Morgan Stanley upgraded the stock to Overweight, while Motilal Oswal and Nuvama reiterated their buy stance. TCS reported higher-than-expected revenue but lower bottomline. Morgan Stanley raised the price target to Rs 4,240. Motilal Oswal has a target of Rs 4,250. Nuvama revised the target to Rs 4,500. Kotak maintained an Add rating.

Shares of Tata Consultancy Services (TCS) jumped over 3% to the day’s high of Rs 3,860.25 on the NSE after the brokerages remained upbeat on IT bellwether following its Q3 results wherein it beat revenue expectations even as the bottom-line trailed Street view.

Morgan Stanley upgraded the stock to Overweight while raising its price target post the quarterly performance while Motilal Oswal and Nuvama reiterated their buy stance on the counter. Kotak Institutional Equities reiterated an ‘Add’ rating on TCS shares.

TCS on Thursday reported higher-than-expected revenue for the quarter ended December 2023, but the bottom-line trailed expectations. India’s largest software service provider reported a 2% year-on-year (YoY) growth in consolidated net profit for the quarter to Rs 11,058 crore, and revenue increased by 4% to Rs 60,583 crore.

Here is what they recommend!

Morgan Stanley: Overweight | TCS Target: Rs 4,240

Morgan Stanley upgraded TCS stock to ‘Overweight’ from an earlier equal weight stance and hiked the price target to Rs 4,240 from 3,900. In its post- earnings stock review, the brokerage noted resilience in its revenues with its Earnings Before Interest and Taxes (EBIT) margin reaching the 25% mark sooner than expected. The management commentary also turned slightly positive with indications of a likely pickup in growth rates, going ahead.

Though the stock underperformed its peers in 2023, its P/E is not cheap but the premium could be sustained if execution improves, the brokerage said.

Motilal Oswal: Buy | TCS Target: Rs 4,250

Motilal Oswal has reiterated a buy stance on TCS with a target of Rs 4,250 after the company reported earnings which beat its estimates. This was despite demand constraints, it said.

Given its size, order book and exposure to long-duration orders and portfolio, TCS is well positioned to withstand the weakening macro environment and ride on the anticipated industry growth, Motilal said.

Owing to its steadfast market leadership position and best-in-class execution, the company has been able to maintain its industry-leading margin and demonstrate superior return ratios, the note said.

The current target implies 25X FY26E EPS with a 14% upside potential.

Nuvama: Buy | Target: Rs 4,500

Calling TCS’ Q3FY24 results solid, which were better than estimates, Nuvama reiterated a buy view on the counter for a target of Rs 4,500 which it revised upwards from an earlier target of Rs 4,400.

Nuvama highlighted management commentary which said that the macro environment was similar to the last quarter with the long-term demand environment remaining strong. It called out its BFSI vertical bottoming out.

“We upgrade FY24E/25E/26E EPS (+1.4%/+1.4%/+1.7%),” the Nuvama note said.

Kotak Equities: Add | Target: Rs 4,115

Kotak in its stock review maintained an Add rating on TCS. The company’s headline revenue growth was ahead of its estimate, driven by higher contributions from the BSNL deal. The company has reined in costs well, aiding higher-than-expected margin improvement, it said.

“We cut our revenue growth for FY2025E while keeping estimates unchanged for FY2026. EPS estimates are largely unchanged and so is our fair value of Rs 4,115,” the brokerage said.

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