A month has gone by since the last earnings report for Epam (EPAM Quick QuoteEPAM - Free Report) . Shares have lost about 6.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Epam due for a breakout? 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 Tops Q3 Earnings & Revenue Estimates

EPAM reported third-quarter 2020 non-GAAP earnings of $1.65 per share, beating the Zacks Consensus Estimate by 12.2%. The figure also grew 18.7% year over year.

Revenues came in at $652.2 million, reflecting a year-over-year rise of 10.9%. The top line also surpassed the consensus mark by 1.7%. On a constant currency (cc) basis, revenues were up 10%.

The company is benefiting from growth across all geographies and multiple industry verticals. Digital transformation, focus on customer engagement and product development have been key catalysts.

Quarterly Details

EPAM Systems’ largest vertical, Business Information & Media, jumped 32.3% year over year to $140 million and accounted for 21.5% of revenues.

Financial Services increased 4.9% on a year-over-year basis to $136.7 million and accounted for 20.9% of revenues.

While Software & Hi-Tech was up 9.7% to $118.8 million, Travel & Consumer slipped 2% to $110.2 million. Software & Hi-Tech, and Travel & Consumer accounted for 18.2% and 16.9% of revenues, respectively.

Life Science & Healthcare increased 11.1% year over year to $74.2 million, and accounted for 11.4% of revenues.

Emerging Verticals improved 12.2% year over year to $72.3 million and contributed 11.1% of revenues.

Geographically, EPAM Systems generated 59.8% of total revenues from North America, up 8.8% year on year to $390 million.

Revenues from Europe, contributing 32.9% to total revenues, were up 13.3% to $214.5 million.

CIS, representing 4.6% of revenues, increased 13.4% to $30 million.

APAC was up 27.4% to $17.7 million and accounted for 2.7% of revenues.

Meanwhile, selling, general and administrative expenses as a percentage of revenues shrunk 230 basis points (bps) year over year to 17.9%.

EPAM Systems’ non-GAAP operating income improved 23.6% year over year to $123.3 million. Operating margin expanded 190 bps to 18.9%.

Balance Sheet and Cash Flow

As of Sep 30, 2020, EPAM Systems had cash and cash equivalents of $1.22 billion, up from $1.05 billion as of Jun 30, 2020.

As of Sep 30, 2020, long-term debt was $25 million, flat sequentially.

EPAM Systems generated cash flow from operating activities of $175.6 million compared with the year-ago quarter’s $119 million.

Q4 Outlook

EPAM Systems expects revenues between $695 million and $705 million in the fourth quarter, suggesting year-over-year growth of 10.6% at the mid-point of the range.

The company anticipates non-GAAP operating margin in the 17.5-18.5% range. Non-GAAP earnings are expected to be in the $1.63-$1.73 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 11.92% due to these changes.

VGM Scores

At this time, Epam has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Epam has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.