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Epam Systems Faces Analyst Downgrade Amid Revenue Guidance Cut

By Don Francis, Editor
May 15, 2024 7:07 AM UTC
Epam Systems Faces Analyst Downgrade Amid Revenue Guidance Cut

Mizuho's Sean Kennedy lowered their price target on Epam Systems (NYSE: EPAM) by 25.2% from $345 to $258 on May 14th, 2024. The analyst maintained their Strong Buy rating on the stock.

Epam Systems, a manufacturer of custom software and provider of consulting services, recently reported its Q1 2024 earnings. The results, coupled with a lowering of the company's FY 2024 revenue guidance, led to a 27% post-print selloff. Kennedy, however, argued that the weak IT services market was the main culprit and not a company-specific issue.

Kennedy told investors that Mizuho sees Epam's valuation as "compelling" and views the recent selloff as a buying opportunity. Despite the disappointing guidance cut, the analyst remains optimistic about the company's potential.

In Q1 2024, Epam Systems reported earnings per share (EPS) of $2.46, beating the Zacks Consensus Estimate of $2.32. However, it fell slightly short of Q1 2023's EPS of $2.47 by 0.4%. The company's revenue for the quarter was $1.165 billion, in line with the Zacks Consensus Estimate but down 3.8% compared to Q1 2023's $1.62 billion.

Excluding the effect of Epam System's withdrawal from Russia, the company's revenue declined by 4.8% year-over-year. The operating margin for Q1 2024 was 14.%, down from the previous year's 14.%.

Looking ahead, management provided guidance for Q2 2024 and FY 2024. For Q2 2024, Epam Systems anticipates EPS of $2.21 to $2.29, revenue of $1.135 billion to $1.145 billion (a 2.6% year-over-year decline at the midpoint), and an operating margin of 13.5% to 14.5%.

For the full fiscal year 2024, the company expects EPS of $10 to $10.30, down from the previous range of $10 to $10.40. Revenue is projected to be $4.575 billion to $4.675 billion, representing a 1.4% year-over-year decline at the midpoint, compared to the prior guidance of 1% to 4% growth. The operating margin is expected to range from 15% to 15.5%, up from the previous range of 14.5% to 15.5%.

In response to the earnings report, Epam Systems' President and CEO Arkadiy Dobkin acknowledged the challenging demand environment and expressed the company's focus on refining global operations and investing in optimized and AI-enabled delivery, consulting, partnerships, generative AI capabilities, and client-centric talent.

Currently, 50% of top-rated analysts rate EPAM as a Strong Buy or Buy, while the other 50% consider it a Hold. No analysts recommend or strongly recommend selling the stock.

The consensus forecast among analysts indicates that EPAM's next fiscal year will deliver earnings per share (EPS) of $11.43. If analysts' predictions hold true, this would represent a 53.5% increase in EPS on a year-over-year basis.

Since the release of Epam Systems' latest quarterly report on May 9th, 2024, the stock price has risen by 2.8%. However, on a year-over-year basis, the stock is down by 21%, trailing behind the S&P 500, which has decreased by 26.8%.

Mizuho analyst Sean Kennedy, who lowered the price target on Epam Systems, is ranked in the bottom 26% of Wall Street analysts by WallStreetZen. Kennedy specializes in the Technology sector and has an average return of -20% and a win rate of 0%.

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