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EPAM Plunges 22% on Guidance Cut Amid Weak Customer Spending
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EPAM Systems (EPAM - Free Report) shares plunged 21.7% on Monday after the IT consulting company trimmed guidance for the current quarter as well as the remainder of the year. EPAM stated that further deterioration in the near-term demand environment led it to cut guidance for the two periods.
EPAM’s CEO & president, Arkadiy Dobkin, revealed that the company has seen its customers turning more cautious on IT spending compared with what it had been experiencing at the time of first-quarter 2023 financial results on May 5. Moreover, pipeline conversions are occurring at slower rates than in the past.
Second-Quarter Guidance Update
EPAM now expects revenues for the second quarter of 2023 between $1.16 billion and $1.17 billion, lower from the earlier guidance range of $1.195-$1.205 billion. The updated top-line guidance indicates a year-over-year decline of 2.5% at the midpoint of the range.
The company now forecasts GAAP diluted earnings per share (EPS) in the range of $1.75-$1.82 and non-GAAP diluted EPS of $2.33 to $2.40. Earlier, it had projected second-quarter GAAP and non-GAAP EPS in the range of $1.82-$1.90 and $2.38-$2.46, respectively.
Nonetheless, EPAM reaffirmed its guidance for income from operations and tax rates. The company continues to project GAAP and non-GAAP income from operations in the range of 10%-11% and 14%-15%, respectively. It still expects GAAP and non-GAAP effective tax rates of 20% and 23%, respectively.
FY23 Guidance Revision
EPAM lowered its top-line guidance for the full year to the $4.65-$4.80 billion band from the $4.95-$5.00 billion range, implying a year-over-year decline of 2% at the midpoint of the new guidance range. The forecast for GAAP EPS has been reduced to the $7.28-$7.68 range from the $8.11-$8.31 band projected earlier, while the guidance range for non-GAAP EPS has been trimmed to $9.80-$10.20 from $10.60-$10.80.
GAAP income from operations is now forecast in the range of 11%-12% instead of the 11.5%-12.5% band projected previously. Similarly, the projection for non-GAAP income from operations is now reduced to 15%-16% from 15.5%-16.5%.
However, EPAM still anticipates GAAP and non-GAAP effective tax rates for the full-year 2023 to be approximately 21% and 23%, respectively.
EPAM’s downbeat guidance for the second quarter and full-year 2023 reflects the negative impact of softening IT spending. Rising interest rates and inflationary pressures are hurting consumer spending. Meanwhile, enterprises are postponing their large IT spending plans due to a weakening global economy amid ongoing macroeconomic and geopolitical issues. This does not bode well for EPAM’s prospects in the near term.
Zacks Rank & Stocks to Consider
EPAM currently carries a Zacks Rank #4 (Sell). Shares of EPAM have plunged 38% year to date (YTD).
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EPAM Plunges 22% on Guidance Cut Amid Weak Customer Spending
EPAM Systems (EPAM - Free Report) shares plunged 21.7% on Monday after the IT consulting company trimmed guidance for the current quarter as well as the remainder of the year. EPAM stated that further deterioration in the near-term demand environment led it to cut guidance for the two periods.
EPAM’s CEO & president, Arkadiy Dobkin, revealed that the company has seen its customers turning more cautious on IT spending compared with what it had been experiencing at the time of first-quarter 2023 financial results on May 5. Moreover, pipeline conversions are occurring at slower rates than in the past.
Second-Quarter Guidance Update
EPAM now expects revenues for the second quarter of 2023 between $1.16 billion and $1.17 billion, lower from the earlier guidance range of $1.195-$1.205 billion. The updated top-line guidance indicates a year-over-year decline of 2.5% at the midpoint of the range.
EPAM Systems, Inc. Price and Consensus
EPAM Systems, Inc. price-consensus-chart | EPAM Systems, Inc. Quote
The company now forecasts GAAP diluted earnings per share (EPS) in the range of $1.75-$1.82 and non-GAAP diluted EPS of $2.33 to $2.40. Earlier, it had projected second-quarter GAAP and non-GAAP EPS in the range of $1.82-$1.90 and $2.38-$2.46, respectively.
Nonetheless, EPAM reaffirmed its guidance for income from operations and tax rates. The company continues to project GAAP and non-GAAP income from operations in the range of 10%-11% and 14%-15%, respectively. It still expects GAAP and non-GAAP effective tax rates of 20% and 23%, respectively.
FY23 Guidance Revision
EPAM lowered its top-line guidance for the full year to the $4.65-$4.80 billion band from the $4.95-$5.00 billion range, implying a year-over-year decline of 2% at the midpoint of the new guidance range. The forecast for GAAP EPS has been reduced to the $7.28-$7.68 range from the $8.11-$8.31 band projected earlier, while the guidance range for non-GAAP EPS has been trimmed to $9.80-$10.20 from $10.60-$10.80.
GAAP income from operations is now forecast in the range of 11%-12% instead of the 11.5%-12.5% band projected previously. Similarly, the projection for non-GAAP income from operations is now reduced to 15%-16% from 15.5%-16.5%.
However, EPAM still anticipates GAAP and non-GAAP effective tax rates for the full-year 2023 to be approximately 21% and 23%, respectively.
EPAM’s downbeat guidance for the second quarter and full-year 2023 reflects the negative impact of softening IT spending. Rising interest rates and inflationary pressures are hurting consumer spending. Meanwhile, enterprises are postponing their large IT spending plans due to a weakening global economy amid ongoing macroeconomic and geopolitical issues. This does not bode well for EPAM’s prospects in the near term.
Zacks Rank & Stocks to Consider
EPAM currently carries a Zacks Rank #4 (Sell). Shares of EPAM have plunged 38% year to date (YTD).
Some better-ranked stocks from the broader technology sector are Meta Platforms (META - Free Report) , Manhattan Associates (MANH - Free Report) and Blackbaud (BLKB - Free Report) . While Meta and Manhattan Associates each sport a Zacks Rank #1 (Strong Buy), Blackbaud carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Meta's second-quarter 2023 earnings has been revised 8 cents northward to $2.87 per share in the past 30 days. For 2023, earnings estimates have been revised 2.4% upward to $12.04 per share in the past 30 days.
Meta’s earnings beat the Zacks Consensus Estimate twice in the preceding four quarters while missing the same on two occasions, the average surprise being 15.5%. Shares of META have surged 125.5% YTD.
The Zacks Consensus Estimate for Manhattan Associates' second-quarter 2023 earnings has been revised upward by a couple of cents to 72 cents per share for the past 60 days. For 2023, earnings estimates have moved upward by 17 cents to $2.87 per share in the past 60 days.
Manhattan Associates' earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 33.6%. Shares of MANH have soared 52.4% YTD.
The Zacks Consensus Estimate for Blackbaud’s second-quarter 2023 earnings has been revised 2 cents northward to 93 cents per share in the past 30 days. For 2023, earnings estimates have increased to $3.75 per share from $3.68 30 days ago.
Blackbaud's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 10.4%. Shares of BLKB have rallied 25.8% YTD.