On Thursday, EPAM Systems (NYSE:EPAM) experienced a revision in its stock outlook by a leading firm, reflecting cautious market conditions. The price target for the company's shares was lowered to $230 from the previous $340, but the Outperform rating was maintained.
EPAM Systems, recognized for its software engineering and IT consulting services, reported first-quarter results that surpassed expectations. However, the company has adjusted its full-year 2024 guidance due to slower-than-expected pipeline conversions.
This change is attributed to clients delaying the start of programs, influenced by macroeconomic factors. As a result, EPAM's new forecast does not include the previously anticipated recovery in the second half of the year. Instead, the company now expects flat year-over-year revenue growth, as opposed to the earlier projection of low single-digit growth.
The downward revision in EPAM's price target is based on a forward P/E multiple of 19.3 times. The firm highlighted several key points in its assessment, including the expected decrease in Eastern European headcount mix, which is projected to drop to 20% by the end of the year, compared to 70% two to three years ago. Additionally, EPAM has observed a trend of clients returning for incremental work after initially expanding scope with competitors.
Despite a stable demand in North America, Europe's demand remains unpredictable. Days Sales Outstanding (DSO) are anticipated to stay above 70 days, reflecting clients' cautious cash flow management in a challenging macroeconomic environment. The updated guidance for 2024 also suggests a minor quarter-over-quarter revenue decline in the second quarter, followed by slight improvements in the third quarter, and then the typical weaker trends in the fourth quarter.
The report concluded with the removal of EPAM Systems from the firm's Best Ideas List (BIL), indicating a shift in the market's view of the stock's near-term prospects.
InvestingPro Insights
Following the recent adjustments to EPAM Systems' stock outlook and financial guidance, a closer look at real-time data from InvestingPro provides additional context for investors. With a market capitalization of $10.9 billion, EPAM is trading at a P/E ratio of 26.1, suggesting a premium valuation compared to industry peers. This aligns with the InvestingPro Tip that EPAM is trading at a high earnings multiple. Despite recent market challenges, EPAM's balance sheet remains robust, holding more cash than debt, and its liquid assets exceed short-term obligations, offering financial flexibility in uncertain times.
Investors may also note that EPAM is trading near its 52-week low, which could indicate a potential buying opportunity for those who believe in the company's long-term prospects. Indeed, analysts predict the company will remain profitable this year, with a track record of profitability over the last twelve months. For those considering an investment in EPAM Systems, exploring additional InvestingPro Tips could provide deeper insights; there are 8 additional tips available which can be accessed through the InvestingPro platform. To enhance your investing strategy with these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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