On Friday, Needham maintained a Buy rating on EPAM Systems (NYSE:EPAM) but significantly reduced the stock price target to $210 from the previous $350. The adjustment follows EPAM's first-quarter results, which surpassed expectations, but were overshadowed by a subdued second-quarter forecast and a downward revision of the full-year guidance.
EPAM Systems, an information technology services provider, reported that the initial gains seen earlier in the year were short-lived. The company's management pointed to a softer demand and projected a delayed recovery, based on the current visibility, as reasons for the lowered guidance.
The firm's analysis suggests that the challenging demand environment could extend into the fiscal year 2025. Despite this, following a more than 25% drop in EPAM's share price on Friday, the stock is trading at an approximate 13 times ex-cash FY25 P/E multiple. This valuation is noted as a historical low for the company.
Needham believes that for long-term-focused investors willing to wait for a rebound in the IT services sector, the current risk-reward balance appears favorable. This outlook underpins the decision to retain a Buy rating on the stock while adjusting the price target to reflect the revised expectations and market conditions.
The revised stock price target of $210 reflects a cautious stance on EPAM's near-term prospects, taking into account the reduced earnings forecast and prevailing market sentiment. The firm advises that the new target is set with consideration for the anticipated recovery timeline and valuation metrics.
InvestingPro Insights
Amid the market's reaction to EPAM Systems' earnings report and forecast revisions, investors are seeking data-driven insights to navigate the stock's future performance. According to recent InvestingPro data, EPAM Systems holds a market capitalization of $10.54 billion, with a P/E ratio that has adjusted to a more attractive 20.89 based on the last twelve months as of Q1 2024. Despite recent revenue contraction, the company's gross profit margin remains robust at 30.8%, underscoring its ability to maintain profitability.
Two InvestingPro Tips that stand out in the current context are EPAM's strong balance sheet, noted by its cash reserves exceeding its debt, and the stock trading near its 52-week low, which may appeal to value-oriented investors. In the face of recent stock performance declines, these aspects could be particularly relevant for those considering long-term positions.
For investors seeking a deeper analysis, additional InvestingPro tips include insights on the stock's RSI indicating oversold territory and the fact that EPAM is anticipated to remain profitable this year. To access these and more tips, visit InvestingPro and consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. In total, there are 11 more InvestingPro Tips available that can help investors make an informed decision.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.