However, the recent reorganization of businesses with a dedicated India focus as well as enhancement of relationship with Microsoft (MSFT) will enable the company to capture hitherto unaddressed market opportunities going forward.

The company's shares are presently trading at roughly 15.8x our fiscal year 2009 EPADS estimate of $2.35 and at 14.3x our FY10 EPADS estimate of $2.60. We believe the company may be on target with a slew of large-scale and longer duration BPO deals even as competition intensifies for larger deals and growth on a larger scale becomes more difficult.

We continue to believe that INFY may trade at a lower P/E than its historical average and have set a price target of $39.00, or between 16.4x and 16.7x our 2009 estimate over the next six months.

Cutting Commerce Bancshare Ests

We maintain our Hold recommendation on the shares of Commerce Bancshares, Inc. (CBSH). The company's second quarter diluted operating earnings of $0.71 per share were in-line with our estimates but two pennies ahead of consensus. Earnings were driven by expansion in net interest margin and strong growth in non-interest revenue, while the expenses remained under control.

Non-performing assets were somewhat stable but the charge offs increased during the quarter. After reviewing the results, and based on credit concerns, we are decreasing our FY08 and FY09 estimates to $2.88 per share and $3.00 per share, respectively. CBSH currently trades at 12.4 times the consensus forward estimate, a 79% premium to the peer group median. On a price-to-book basis, the shares trade at 1.72 times, a 77% premium to the peer median.

Relative pricing continues to look very expensive on a P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate. CBSH's PEG ratio is now 1.91, a 74% premium to the 1.10 median for the peer group. On a price-to-book basis also, the 77% premium looks quite stretched, given an ROE of 8% above median (the ROE-adjusted P/B is 54% above median).

However, we feel that the premium is justified to some extent given CBSH's superior capital ratios, credit quality and net interest margin, its diversified revenue stream as well as lower exposure to the real estate loans, compared to its peers.

Our six-month price target of $40 per share equates to a P/B multiple of 1.7 times our estimated book value per share six months out (now December 2008) and also equates to 13.9 times our 2008 earnings estimate of $2.88 per share. With the $1.00 per share annual dividend, the target price implies a 7.1% expected total return over the period.

DNA a Core Healthcare Holding

Genentech, Inc.'s (DNA) stock has struggled over the past several quarters.