EPAM Earnings: Revenue Outlook Dims, Lowering Our Fair Value Estimate

Narrow-moat-rated EPAM reported a disappointing start to 2024, as future demand gets pushed out further, revenue growth expectations for 2024 were downgraded, and the firm now expects additional restructuring charges in the second half of the year as it leans more into efficiency as growth slows. We are lowering our fair value estimate to $209 from $234. While the stock is down 25% in reaction to this quarter’s earnings, we think this is likely overdone, unless the company is stuck at a low-single-digit percentage revenue growth rate indefinitely. The expected effect on 2024 earnings is negative, but manageable, and longer term, we still expect an uptick in demand for the types of IT consulting services that EPAM provides, particularly as more AI-related capabilities and workflows are required by clients. We are still looking for a return to double-digit percentage revenue growth in 2025 and mid- to high-single-digit percentage growth thereafter.