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Epam (EPAM) Up 0.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Epam (EPAM - Free Report) . Shares have added about 0.3% 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 catalysts.

EPAM Systems Tops Q4 Earnings Estimates

EPAM Systems reported fourth-quarter 2020 non-GAAP earnings of $1.81 per share, beating the Zacks Consensus Estimate by 5.85%. The figure also grew 19.9% year over year.

Revenues came in at $723.5 million, reflecting a year-over-year rise of 10.9%. The top line also surpassed the consensus mark by 14.3%. On a constant currency (cc) basis, revenues were up 13.7%.

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, grew 16.2% year over year to $141.7 million and accounted for 19.6% of revenues.

Financial Services increased 16.1% on a year-over-year basis to $158.9 million and accounted for 22% of revenues.

While Software & Hi-Tech was up 14.3% to $136.6 million, Travel & Consumer grew 5.4% to $121.8 million. Software & Hi-Tech and Travel & Consumer accounted for 18.9% and 16.8% of revenues, respectively.

Life Science & Healthcare increased 24% year over year to $84 million and accounted for 11.6% of revenues.

Emerging Verticals improved 13.1% year over year to $80.5 million and contributed 11.1% to revenues.

Geographically, EPAM Systems generated 59.9% of total revenues from North America, up 14% year on year. Revenues from Europe, contributing 32% to total revenues, were up 11.8% year over year.

CIS, representing 5.2% of revenues, increased 22.9%, driven mainly by clients in financial services and materials.

APAC was up 39.4% to $17.7 million and accounted for 2.9% of revenues.

Notably, the total headcount was approximately 41,200 as of Dec 31, 2020.

Meanwhile, selling, general and administrative expenses as a percentage of revenues shrunk 190 basis points (bps) year over year to 16.2%.

EPAM Systems’ non-GAAP operating income improved 26.3% year over year to $135.9 million. Operating margin expanded 180 bps to 18.8%.

Balance Sheet and Cash Flow

As of Dec 31, 2020, EPAM Systems had cash and cash equivalents of $1.32 billion, up from $1.16 billion as of Sep 30, 2020.

As of Dec 31, 2020, long-term debt was $25 million, flat sequentially.

EPAM Systems generated cash flow from operating activities of $159.3 million compared with the year-ago quarter’s $124.6 million.

Full-Year Highlights

For 2020, revenues were $2.66 billion, 15.9% higher year over year. Moreover, non-GAAP earnings of $6.34 per share were 17% higher year over year.

Outlook

For the first quarter of 2021, EPAM Systems expects revenues between $757 million and $765 million, suggesting year-over-year growth of 17% at the midpoint of the range. The company expects foreign currency translation to have a 2% favorable impact on year-over-year revenue growth during the quarter.

The company anticipates non-GAAP operating margin in the 16-17% range. Non-GAAP earnings are expected to be in the $1.62-$1.70 per share band.

For the full year of 2021, EPAM Systems projects revenue growth of at least 23% on a reported basis, which includes a 1% favorable impact of foreign currency translation on revenues.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Epam has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, 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.

Outlook

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


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