A month has gone by since the last earnings report for Epam (EPAM). Shares have added about 6.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Epam due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
EPAM Systems Q2 Earnings & Revenues Beat Estimates
EPAM Systems’ reported second-quarter 2020 non-GAAP earnings of $1.46 per share beat the Zacks Consensus Estimate by 21.7% and grew 14.1% year over year.
Revenues came in at $632.4 million, reflecting a year-over-year rise of 14.6%. The top line also surpassed the consensus mark by 5.8%. On a constant currency (cc) basis, revenues were up 15.5%.
The company is benefiting from growth across all industry verticals and geographies. Digital transformation, focus on customer engagement and product development have been key catalysts.
EPAM Systems’ largest vertical, Business Information & Media, surged 42.9% year over year to $140.2 million and accounted for 22.2% of revenues.
Financial Services grew 6.3% on a year-over-year basis to $128 million and accounted for 20.2% of revenues.
While Software & Hi-Tech was up 13.2% to $119.5 million, Travel & Consumer climbed 0.1% to $107.3 million. Software & Hi-Tech, and Travel & Consumer accounted for 18.9% and 17% of revenues, respectively.
Life Science & Healthcare increased 16.4% year over year to $68.9 million and accounted for 10.9% of revenues.
Emerging Verticals improved 10.8% year over year to $68.5 million and contributed 11.9% of revenues.
Geographically, EPAM Systems generated 60.4% of total revenues from North America, up 14.1% year over year to $381.9 million.
Revenues from Europe, contributing 33.4% to total revenues, were up 19% to $211.1 million.
CIS, representing 4% of revenues, fell 12% to $22.1 million.
APAC was up 20.5% to $17.3 million and accounted for 2.7% of revenues.
Meanwhile, selling, general and administrative expenses as a percentage of revenues decreased 250 basis points (bps) year over year to 16%.
EPAM Systems’ non-GAAP operating income improved 16.9% year over year to $108.2 million. Operating margin expanded 30 bps to 17.1%.
Balance Sheet and Cash Flow
As of Jun 30, 2020, EPAM Systems had cash and cash equivalents of $1.05 billion, up from $916.3 million as of Mar 31, 2020.
As of Jun 30, 2020, long-term debt was $25 million, flat sequentially.
EPAM Systems generated cash flow from operating activities of $134.7 million compared with $32.4 million in the year-ago quarter.
Citing the uncertainty regarding the coronavirus pandemic which is impacting the global business and consumer activities, EPAM Systems didn’t provide full-year 2020 outlook.
Nonetheless, the company has issued its guidance for the third quarter.
EPAM Systems expects revenues between $633 million and $643 million, suggesting year-over-year growth of 8.5% at the mid-point of the range.
The company anticipates non-GAAP operating margin in the 16.5-17.5% range. Non-GAAP earnings are expected to be in the $1.40-$1.49 per share band.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 13.41% due to these changes.
At this time, Epam has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Epam has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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