EPAM Earnings Impact: Stock Down 7% – What’s Next?
EPAM Systems’ (NYSE: EPAM) fourth-quarter performance exceeded analyst expectations, with earnings of $2.84 per share and revenue reaching $1.25 billion (up 8% y-o-y), surpassing consensus estimates of $2.75 and $1.21 billion respectively. However, investors were disappointed by the company’s 2025 guidance. The IT services company projected annual revenue growth of 10-15% and adjusted earnings between $10.45 and $10.75 per share, falling below Wall Street’s forecast of $11.32 per share. This underwhelming outlook led to a 7% decline in EPAM’s stock price following the earnings announcement.
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Financial Services Drove The Sales Growth
Looking at segments, EPAM Systems’ Q4 revenues were driven by strong performances in Financial Services, with sales of $281 million, up 16% y-o-y and Emerging Revenues of $212 million, up 25%. Life Sciences and Health saw growth of 8%, while Software & Hi-Tech revenue was up 2%. However, declines were noted in Consumer Goods, Retail & Travel, down -3% and Business Information & Media, down 4%.
Although the company’s sales were higher, it saw its operating margin contract by 60 bps to 16.7% in Q4, due to a higher SG&A expenses. The bottom line grew 3% to $2.84, thanks to the company’s share repurchases of $398 million last year.
EPAM Systems has acquired First Derivative, a strategic move that enhances its consulting and delivery capabilities within the financial services sector. This deal bolsters EPAM’s position as a provider of specialized financial services solutions across these key markets, including North America. It also acquired NEORIS to strengthen its offerings in Latin America.
After The Recent Fall, Is EPAM Stock Undervalued?
EPAM stock fell 7% following the announcement of its Q4 results. However, this kind of volatility is not unusual for the stock. Looking at a slightly longer timeframe, the decrease in EPAM stock over the recent years has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 87% in 2021, -51% in 2022, -9% in 2023, and -21% in 2024.
Given the current uncertain macroeconomic environment around rate cuts and ongoing trade wars, could EPAM stock face a similar situation as it did in 2021, 2022, and 2024 and underperform the S&P over the next 12 months — or will it see a recovery? From a valuation perspective, EPAM stock appears to be fairly priced now.
At its current levels of around $210, EPAM stock carries a price-to-sales ratio of 2.6x, below its three-year historical average of 3.5x. Although recent performance was positive, the company’s weak guidance has tempered our enthusiasm. Consequently, we believe a slight downward adjustment to the valuation multiple is justified, and we consider EPAM Systems fairly valued at its current price.
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