Persistent positives mainly priced in, analysts say; Highest target implies 40% upside

Shares of Persistent Systems Ltd. are in focus on Wednesday, January 21, as brokerages had mixed views on the stock after it reported its third quarter earnings post market hours on Tuesday.

While CLSA has retained its "high conviction outperform" rating on the stock, HSBC and Nomura chose to remain "neutral" on the stock for reasons explained hereon.

CLSA

CLSA has a "high conviction outperform" rating on Persistent Systems and has raised its price target from ₹8,731 apiece to ₹8,865 per share, indicating an upside potential of 40.6% from its previous close. This is also the highest price target for the stock on the Street.

CLSA said Persistent Systems continues to meet expectations with another stellar quarter defined by all-round revenue growth, strong order booking and sharp improvement in profitability.

It said the company's long-term revenue targets of $2 billion by the financial year 2027 and $5 billion by FY31 are strongly-intact.

In the third quarter, the company's adjusted earnings before interest and tax (EBIT) were 9% ahead of CLSA's expectations.

CLSA has increased its earnings per share (EPS) estimates for FY27 and FY28 by 3% and 2%, respectively and it continues to forecast its revenue, EBIT and EPS to grow at a Compunded Annual Growth Rate (CAGR)  of 22%, 30% and 31% respectively over financial year 2025-2027.

HSBC

HSBC has a "hold" rating on the stock with a price target of ₹6,560 apiece, indicating a 4% upside potential from Tuesday's close.

HSBC said Persistent Systems reported strong growth in the third quarter and further improvement in profitability, led by licence sales for its AI platforms and tools.

Persistent's software engineering skills and improving capabilities to execute managed service contracts are driving growth. However, market expectations seem to be fully pricing in the current valuation, HSBC's note said.

Nomura

The brokerage has a "neutral" rating on Persistent Systems with a price target of ₹6,100 per share, indicating  a 3% downside from current levels.

It said the company's third quarter growth was in-line with estimates while its margins beat estimates, led by AI platform and tool-driven pricing models.

Nomura has raised Persistent Systems' financial year 2027-2028 EPS estimates by 2% each, with the stock trading at 41.5 times its financial year 2027 estimated EPS.

However, within the midcap IT space, the brokerage prefers Coforge over Persistent Systems.

Q3 performance

Persistent Systems reported constant currency revenue growth of 4.1% compared to a 3.7% estimate. Margin gains were driven by AI platform and tools driven pricing model, which will not be available in the next quarter.

Of the 42 analysts that have coverage on the stock, 24 have a "buy" rating, eight have a "hold" rating and 10 have a "sell" rating.

Shares of Persistent Systems ended the previous session 2.1% lower at ₹6,306 apiece. The stock has gained 9.1% in the last six months.

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