Epam Jumps 9% As Q4 Beats; Can Stock Challenge India Outsourcers?
The stocks of Eastern European-rooted IT outsourcing companies, including Epam Systems, have seen more downside in recent months than the India-centric ones. But Epam just had a great day. Newton, Penn.-based Epam’s ( EPAM ) stock jumped 14% early Thursday and kept most of that gain through the day, as investors responded to a consensus-beating fourth quarter report that included a 26% revenue surge and mixed guidance. Epam closed up 9.3% in the stock market today at 65.67, still 22% off an all-time high set Dec. 17 at 84.41. The company went public priced at 12 in January 2012. Specializing in software development and testing for tech vendors, EPAM was founded by two Belarusians, one in Princeton. N.J., and the other in Minsk. Founded in Moscow, Luxoft Holding ( LXFT ), now headquartered in Switzerland, was up 2% Thursday near 51, still 36% off its its Dec. 8 record high of 80.64. Luxoft maintained half its workforce in Ukraine before war broke out between the government and Russian-backed rebels. It still employs thousands in Eastern Europe as it grows its presence there, in Western Europe and elsewhere. Two of the largest IT consulting and business process outsourcing (BPO) firms, U.S.-based Cognizant Technology Solutions (CTSH) and India-based Infosys ( INFY ), are trading 19% and 15% below their 52-week high marks, respectively. Cognizant fell 1.1% to 56.01 Thursday and Infosys 0.4% to 16.41. Infosys holds the highest IBD Composite Rating of the bunch, 82 out of a possible 99. Cognizant gets a 79, as does Epam. Luxoft has a 65. While all four firms support employees outside their workforce bases, they have a more important thing in common: All four look to the U.S. for a plurality, if not a majority, of their revenue. “Epam’s competitive differentiation comes from its highly educated workforce in Eastern Europe and Russia, nearly all of whom hold a master’s equivalent university degree in math, science or engineering,” said Baron Global Advantage Fund ( BGAFX ) portfolio manager Alex Umansky in a Dec. 31 newsletter. “In contrast, most India-based competitors predominantly rely upon recent college graduates with limited experience.” The difference, he said, allows Epam “to work on higher-value client projects with stronger pricing power than peers” and makes Epam “well-suited” to benefit from rising corporate spending on SMAC, or social, mobile analytics and cloud technologies. Another outsourcer, neither Eastern Europe nor India oriented, ManTech International ( MANT ), rose 1.5% to close at 27.44 Thursday after rallying as high as 29.14 in the morning. ManTech is 22% off a nearly three-year high set exactly one year ago today, Feb. 18. ManTech specializes in highly sensitive IT for U.S. defense and intelligence agencies. After Wednesday’s close, ManTech offered revenue guidance up 5% for 2016, following a 46% slide in sales from 2011 through 2015, prompting Cowen analyst Gautam Khanna to suggest in a Thursday research note that “growth finally appears plausible.” For Q4, ManTech said diluted EPS fell to 37 cents from 39 cents a year earlier, on revenue of $402 million, down from $411 million in the year before. For the full year, diluted earnings rose to $1.36 per share from $1.27, on sales of $1.55 billion, down from $1.77 billion in 2014. As for Epam Systems, it earned 78 cents per share minus items in Q4, up 26% from a year earlier, beating Wall Street analysts polled by Thomson Reuters by 5 cents, on revenue up 29% to $260 million, beating analyst views by about $9 million. Epam guided adjusted Q1 EPS to 70 cents, short of analyst expectations of 72 cents, on revenue up 29% to $258 million, beating Wall Steet’s $250 million estimate. For the year, it guided adjusted EPS to $3.20 vs. analysts’ $3.16, on revenue up at least 26% to $1.151 billion, beating Wall Street’s $1.122 billion.