Wipro Earnings: Discretionary Conservatism Weighs on Consulting but Shares Attractive

Narrow-moat Wipro reported fourth-quarter results that came in under our top-line expectations as discretionary spending has slowed down, affecting verticals like consulting, in which Wipro has increased its mix over the last several years. Nonetheless, we are confident that digital transformation trends that benefit both consulting and nonconsulting revenue will be unshakable in the long term. As a result, we are maintaining our fair value estimate of INR 450 ($5.40 for U.S. ADR shares). We believe that Wipro’s stock is attractive right now, as we think the market is factoring in discretionary weakness having greater lasting effects in the long term. However, we believe that hitting the pause button on new digital transformation projects won’t have companies losing excitement for such modernizations later. We think that the same discrepancy between our view and the market is why Wipro’s peer Infosys is also undervalued, in our view.