Scotiabank Upgrades EPAM Systems (EPAM) to Sector Outperform

Scotiabank analyst Divya S. Goyal upgraded EPAM Systems (NYSE: EPAM) from Sector Perform to Sector Outperform with a price target of $275.00 (from $245.00).

The analyst comments "A solid quarter, but management remains cautions of delayed decision-making despite signs of an improving demand environment. EPAM reported higher-than-anticipated revenues for Q3/24 of $1.17 billion, up 1.3% on a y/y reported basis and 0.9% on a y/y cc basis. FX and exit from Russia created modest headwinds of 150bps and 110bps respectively. Management highlighted a sequential improvement in the demand environment, particularly in North America and EMEA with growing traction across healthcare and life sciences (+14.6% y/y), emerging verticals (+8.5% y/y), and the financial services industry (+3.3% y/y). However, business information & media as well as consumer goods & retail saw a significant decline as clients grappled with pressures in their end markets. That said, management cited positive demand sentiment amongst new and existing clients as compared to the prior quarter with some prolonged decision-making on larger transformational programs. Additionally, the company noted significant traction in advanced data and cloud engineering offerings with more clients investing in digital cloud infrastructure; however, the scale of investments remains largely unclear at this time. Non-GAAP gross margin for the quarter came in at 34.3% (up 140 bps y/y) which benefited from R&D incentives granted by the Polish government. Please note that $22.9 million of the benefit pertaining to F2023 incentives has been adjusted for non-GAAP purposes. While the past incentives from F2023 and YTD F24 were lumped this quarter, the company expects the cadence of these Polish R&D benefits to be normalized going forward. Further, the company’s ongoing cost containment efforts led to lower non-GAAP SG&A at 14% of revenue (down 40 bps y/y) resulting in non-GAAP operating income of $223 million, or 19.1% operating margin as compared to $196 million, or 17% operating margin in Q3/23."

For an analyst ratings summary and ratings history on EPAM Systems click here. For more ratings news on EPAM Systems click here.

Shares of EPAM Systems closed at $233.45 yesterday.

You May Also Be Interested In