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Epam Systems Inc (EPAM)
NYSE:EPAM
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Epam Systems
(NYSE:EPAM)
73Outperform
Positive Factors
Client Engagement
There has been a positive tone shift in client conversations, indicating more openness to discretionary projects.
Financial Outlook
EPAM's initial 2025 guidance marks an expected return to annual organic CC growth after about two years.
Revenue Growth
EPAM beat its organic CC revenue growth expectations marked by significantly better-than-expected growth in Financial Services and Emerging Verticals.
Negative Factors
Industry Challenges
The pricing environment remains challenging, with clients still heavily focused on costs.
Margin Contraction
A focal point of earnings was EPAM guiding a -150bps adjusted operating margin contraction in 2025 at the midpoint of guidance, which worried investors.
Operating Margin
The weak adjusted operating margin outlook signals that 2025 is likely a transition year for the company as it digests acquisitions and invests ahead of demand and new technologies like GenAI.
Epam Systems (EPAM) vs. S&P 500 (SPY)
Market Cap
$9.08B
Dividend YieldN/A
Average Volume (3M)704.83K
Price to Earnings (P/E)20.4
Beta (1Y)1.23
Revenue Growth0.80%
EPS Growth10.05%
CountryUS
Employees61,200
SectorTechnology
Sector Strength68
IndustryInformation Technology Services
Share Statistics
EPS (TTM)7.84
Shares Outstanding56,625,954
10 Day Avg. Volume561,215
30 Day Avg. Volume704,832
Financial Highlights & Ratios
PEG Ratio2.03
Price to Book (P/B)N/A
Price to Sales (P/S)0.00
Price to Cash Flow (P/CF)0.00
P/FCF Ratio0.00
Enterprise Value/Market Cap1.36
Enterprise Value/RevenueN/A
Enterprise Value/Gross Profit8.48
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
$209.42Price Target Upside30.59% Upside
Rating ConsensusStrong Buy
Number of Analyst Covering12
Epam Systems Business Overview & Revenue Model
Company DescriptionEPAM Systems, Inc. provides digital platform engineering and software development services worldwide. The company offers engineering services, including requirements analysis and platform selection, customization, cross-platform migration, implementation, and integration; infrastructure management services, such as software development, testing, and maintenance with private, public, and mobile infrastructures for application, database, network, server, storage, and systems operations management, as well as monitoring, incident notification, and resolution services; and maintenance and support services. It also provides operation solutions comprising integrated engineering practices and smart automation; and optimization solutions that include software application testing, test management, automation, and consulting services to enable customers enhance their existing software testing and quality assurance practices, as well as other testing services that identify threats and close loopholes to protect its customers' business systems from information loss. In addition, the company offers business, experience, technology, data, and technical advisory consulting services; and digital and service design solutions, which comprise strategy, design, creative, and program management services, as well as physical product development, such as artificial intelligence, robotics, and virtual reality. It serves the financial services, travel and consumer, software and hi-tech, business information and media, life sciences and healthcare, and other industries. The company was founded in 1993 and is headquartered in Newtown, Pennsylvania.
How the Company Makes MoneyEPAM Systems generates revenue primarily through offering software engineering, product development, and digital platform services to its clients. The company utilizes a global delivery model, combining onshore and offshore resources to provide cost-effective solutions. Revenue streams are largely driven by long-term contracts with a diverse range of clients across multiple sectors, ensuring stability and growth. EPAM's client engagements often involve custom software development, consulting, and integration services, as well as ongoing support and maintenance. Significant partnerships with major technology providers also enhance EPAM's service offerings, allowing the company to leverage the latest technological advancements and expand its capabilities.
Epam Systems Financial Statement Overview
Summary
Epam Systems demonstrates a solid financial position with consistent revenue growth, strong profitability margins, and a robust balance sheet characterized by low leverage and high equity levels. The company's cash flow generation is commendable, maintaining flexibility for future investments and operations. These factors collectively highlight Epam Systems' strong financial health and stability in the competitive software industry.Income Statement
Epam Systems has shown consistent revenue growth over the years, with a recent increase from $4,690.54 million to $4,727.94 million, resulting in a modest revenue growth rate of 0.8%. The company maintains strong profitability with a gross profit margin of 30.7% and a net profit margin of 9.6%. EBIT and EBITDA margins are also healthy at 11.5% and 14.3%, respectively. The company's ability to sustain profitability and growth in revenue indicates a solid performance in the software industry.85
Very Positive
Balance Sheet
Epam Systems exhibits a strong balance sheet with a low debt-to-equity ratio of 0.045, indicating minimal leverage. The equity ratio is robust at 76.4%, signifying strong capitalization and low financial risk. Return on equity (ROE) stands at 12.5%, reflecting efficient use of equity to generate profits. Overall, the company shows financial stability and low risk, supported by high equity levels and minimal debt.88
Very Positive
Cash Flow
Epam Systems maintains a strong cash flow position with an operating cash flow to net income ratio of 1.23, demonstrating efficient cash generation relative to earnings. The free cash flow to net income ratio is also strong at 1.16. Despite a slight decline in free cash flow from $534.22 million to $527.02 million, the company's cash flow generation capabilities remain strong, supporting ongoing operations and growth opportunities.83
Very Positive
| Breakdown | ||||
| Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|
| Income Statement | Total Revenue | |||
| 4.73B | 4.69B | 4.82B | 3.76B | 2.66B | Gross Profit |
| 1.45B | 1.32B | 1.54B | 1.27B | 926.96M | EBIT |
| 544.58M | 501.24M | 572.97M | 542.32M | 379.32M | EBITDA |
| 671.69M | 669.29M | 713.01M | 616.79M | 508.57M | Net Income Common Stockholders |
| 454.53M | 417.08M | 419.42M | 481.65M | 327.16M |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | |||
| 1.29B | 2.10B | 1.74B | 1.45B | 1.38B | Total Assets |
| 4.75B | 4.35B | 4.01B | 3.52B | 2.72B | Total Debt |
| 163.25M | 171.94M | 193.22M | 239.16M | 266.40M | Net Debt |
| -1.12B | -1.86B | -1.49B | -1.21B | -1.06B | Total Liabilities |
| 1.12B | 880.89M | 1.01B | 1.03B | 738.31M | Stockholders Equity |
| 3.63B | 3.47B | 3.00B | 2.49B | 1.98B |
| Cash Flow | Free Cash Flow | |||
| 527.02M | 534.22M | 382.48M | 460.83M | 475.61M | Operating Cash Flow |
| 559.17M | 562.63M | 464.10M | 572.33M | 544.41M | Investing Cash Flow |
| -884.98M | -66.77M | -182.93M | -368.92M | -167.15M | Financing Cash Flow |
| -390.41M | -165.77M | -2.02M | -59.56M | -765.00K |
Epam Systems Technical Analysis
Negative
160.36
Price Trends
173.17
Negative
209.16
Negative
208.74
Negative
Market Momentum
-4.21
Negative
48.83
Neutral
81.29
Negative
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For EPAM, the sentiment is Negative. The current price of 160.36 is above the 20-day moving average (MA) of 152.06, below the 50-day MA of 173.17, and below the 200-day MA of 208.74, indicating a neutral trend. The MACD of -4.21 indicates Negative momentum. The RSI at 48.83 is Neutral, neither overbought nor oversold. The STOCH value of 81.29 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for EPAM.
Epam Systems Risk Analysis
Epam Systems disclosed 35 risk factors in its most recent earnings report. Epam Systems reported the most risks in the “Tech & Innovation” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Epam Systems Peers Comparison
Overall Rating
UnderperformOutperform
Sector (60)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
78 Outperform | $7.63B | 35.40 | 23.81% | ― | 14.18% | 21.49% | |
78 Outperform | $8.69B | 17.46 | 22.15% | 1.26% | 6.46% | -16.94% | |
76 Outperform | $10.19B | 21.86 | 13.48% | ― | 14.16% | 22.25% | |
73 Outperform | $9.08B | 20.45 | 12.80% | ― | 0.80% | 10.05% | |
72 Outperform | $2.76B | 15.37 | 21.21% | ― | -0.64% | 30.96% | |
70 Outperform | $5.26B | 31.29 | 8.97% | ― | 15.26% | 2.66% | |
60 Neutral | $10.94B | 10.58 | -7.08% | 2.98% | 7.52% | -12.04% |
* Technology Sector Average
Performance Comparison
EPAM
Epam Systems
160.36
-86.03
-34.92%
CACI
Caci International
463.17
39.42
9.30%
EXLS
Exlservice Holdings
46.87
16.95
56.65%
G
Genpact
49.71
17.91
56.32%
WNS
WNS
59.69
10.95
22.47%
GLOB
Globant SA
119.49
-71.45
-37.42%
Epam Systems Earnings Call Summary
Earnings Call Date:Feb 20, 2025
(Q4-2024)
| % Change Since: -37.87%|
Next Earnings Date:May 08, 2025
Earnings Call Sentiment Neutral
EPAM Systems demonstrated a strong return to organic growth and successful integration of acquisitions, significantly expanding its global footprint and capabilities. Despite impressive growth in AI engagements and key verticals, the company faces ongoing profitability pressures due to a challenging pricing environment and geopolitical risks. The outlook remains cautiously optimistic, balancing strategic investments with macroeconomic uncertainties.Q4-2024 Updates
Positive Updates
Return to Organic Revenue Growth
In Q4, EPAM reported a mid-single-digit growth year-over-year and sequentially, returning to organic revenue growth for the first time since Q1 of 2023. This was driven by improvements in client sentiments and engagements across all verticals and geographies, especially in AI-related capabilities.
Successful Acquisitions and Expansion
The acquisitions of NEORIS and First Derivative significantly expanded EPAM's global footprint, adding nearly 6,000 employees across Latin America, Canada, Spain, UK, and Ireland. These acquisitions are expected to accelerate EPAM's strategy and improve its market position.
Strong Performance in Key Verticals
Four out of six verticals grew year-over-year, with strong momentum in life sciences, healthcare, software and high tech, and financial services. The Americas and APAC regions led the growth year-over-year.
Growth in AI Engagements
EPAM reported significant traction in GenAI initiatives, with 75% of top country clients engaged. The revenue from AI-native programs reached about $50 million in Q4, reflecting strong growth in early-stage projects.
Record Headcount Growth
EPAM ended Q4 with over 61,200 employees, including significant contributions from recent acquisitions and organic growth. Notably, India became the largest single country delivery location for EPAM, now representing over 10,000 employees.
Negative Updates
Profitability Pressure
EPAM experienced a decline in non-GAAP gross margin to 32.2% in Q4 2024 from 33% in the same quarter last year, due to compensation increases that were not offset by pricing and lower profitability from recent acquisitions.
Challenging Pricing Environment
The company faced difficulties in improving client pricing in the near term, which combined with compensation increases and dilution from recent acquisitions, resulted in margin pressures.
Geopolitical and Macro Risks
Ongoing geopolitical issues, particularly in Ukraine, and macroeconomic uncertainties continue to pose challenges, with potential impacts on client spending and talent markets.
Lower Cash Flow from Operations
Cash flow from operations in Q4 was $130 million, down from $171 million in the same quarter of 2023, attributed to recent acquisitions and increased operational expenses.
Company Guidance
During the earnings call for the fourth quarter and full year 2024, EPAM Systems provided guidance indicating a revenue growth range of 10% to 14% for 2025, with inorganic contributions from recent acquisitions, NEORIS and First Derivative, accounting for approximately 10% of this growth. The company anticipates flat organic revenue growth in the first quarter, followed by sequential improvements throughout the year. On the profitability front, EPAM expects GAAP income from operations to range between 9% and 10%, and non-GAAP income from operations between 14.5% and 15.5% for the full year. The guidance reflects continued investments in GenAI platforms, talent retention, and strategic growth initiatives, with profitability expected to improve in the second half of the year. The company also expects a GAAP diluted EPS of $6.78 to $7.08 and a non-GAAP diluted EPS of $10.45 to $10.75, with a weighted average of 58.1 million fully diluted shares outstanding.Epam Systems Corporate Events
M&A TransactionsBusiness Operations and Strategy
EPAM Systems Expands Global Reach with NEORIS Acquisition
Positive
Nov 1, 2024
EPAM Systems completed its acquisition of NEORIS, a global technology consultancy, enhancing its delivery capabilities in Latin America and Europe. This strategic move expands EPAM’s reach in Spanish- and Portuguese-speaking countries and strengthens its offerings across key industries like manufacturing, banking, and retail. The acquisition aligns with EPAM’s goal to boost client value through digital transformation projects, leveraging NEORIS’s expertise in digital experience and technology consulting.
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.