EPAM Earnings: Q2 Sees Stabilization and Mixed Outlook for the Specialized Firm; Shares Undervalued

We reiterate our $209 per share fair value estimate for narrow-moat EPAM after the firm reported second-quarter earnings in line with our expectations, alongside a mixed outlook. Our confidence in the firm’s ability to achieve a top-line compound annual growth rate over the next five years in the midsingle digits remains. EPAM stock declined approximately 10% upon results, now leaving the stock in undervalued territory, in our view. While we agree that the revenue outlook in the near term is bleak (though stabilized), we think that the market is overlooking EPAM’s concentration in engineering services, which is unique to its large, public IT services peers who have a more varied base of offerings. Before the current macro weakness, engineering services was one of the fastest-growing offerings in the IT services industry. We think it will return to healthy growth after the near-term slump as it appears that demand for massive tech overhauls (which depends heavily on engineering services to make enterprise tech as agile as possible) remains strong, though put on pause in the near term.