EPAM – Long play – shares via /r/wallstreetbets #stocks #wallstreetbets #investing


EPAM – Long play – shares

EPAM is a Digital Transformation Services company.

They are registered in USA, Delaware, since 1993.

They have a market cap of 16 Billion.

These type of companies are like a one stop shop for all type of IT services and technologies existing on the market, from bespoke development to AI, Computer Vision and Data Science to commercial off-the-shelf products implementation.

Competition: They are competing against bigger or smaller companies, the bigger ones being the likes of: IBM, Accenture, Capgemini, Cognizant.

FY2021:

  • Revenues increased 41% to $3.76B.
  • Net income increased 47% to $481.7M.
  • Out of 3.7B revenues North America accounts for more than half with $2.24B, Europe around a third with $1.35B. UK$474.9M, Switzerland $271.2M, Russia s$165.4M.

Problem:

  • When war started, they activated their business continuity plans, they removed their yearly guidance, and they closed all contracts with clients in Russia and are relocating staff that need to from Ukraine into Central and Western Europe. They pledged 100millions for this purpose. This is documented from their formal PR communication channels.
  • Why: 14.000 employees are located in Ukraine and Belarus, mostly in Ukraine. Out of 59.000 worldwide. A quarter.
  • What happened: They crashed from 600-800 price bracket to around 200 for a brief period, then resumed trend upwards in the past month.

Opportunity:

Why I think market overreacted and why I think it is a very good long play:

  • The employees will have little trouble to move out from Ukraine, taking even their extended families with them, with minimal disruption to the company
    • All IT services employees in central and eastern Europe are very highly paid, very close to western europe pay grade.
    • Most of them speak English
    • Most European countries suspended the working permit requirements for people from Ukraine
    • EPAM has offices also in Bulgaria, Austria, Check replublic, France, Georgia, Germany, Hungary, ire;land, Italy, Lithuania, etcetera. Employees can work whereever there is Internet, pandemic took care of that, all infrastructure is already there
  • EPAM is already recruiting extra staff in all these countries to compensate for the disruption
  • Revenue impact for 2022
    • Russia accounts for only 170 Milions out of 3.8 billions, under 5%. The rest of the revenue flow is not directly impacted
    • In this business model, the revenue is mostly and roughly directly proportional to the number of employees
    • Bottom line, in the most pessimistic scenario , in which everything works against the company, there is a very slim chance they lose around 20% of revenue and some profitability. If their business continuity plans are strong, they will ride this, using some of the cash flow they have and then get back on track with very good year on year increases afterwards
  • Before the war, the analysts had all strong buy ratings, putting them around 6-800 target.
  • They traded around 700 before the war. They are now trading at around 280. JPMorgan just refreshed their rating, it’s stilla buy, just the target decresed to 450.
  • Insiders are all buying stock like crazy atm
  • First quarter earnigs release call is 5th of May
  • Key ratios indicators suggesting a buy atm, all better than competitors:
    • Price / Earnings Was 81 end of year -> 34 atm, huge discount

Risks:

  • the impact a potential recession on digital transformation companies and the timing of this potential recession against their business continuity plans executed in 2022.

Disclosure:

https://preview.redd.it/oyjye2vqx3s81.png?width=253&format=png&auto=webp&s=f833b2d3122964df186e59b5dd5ac59c436fb366

All information above is available on their PR channels and Interactive Brokers news.

Submitted April 07, 2022 at 03:25PM by fandango4wow
via reddit https://ift.tt/tARjkFQ