EPAM

We rate EPAM Systems, Inc. (EPAM) as a Reduce with a composite score of 45.1/100 at a current price of $128.90. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in value (60th percentile) and quality (54th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (24th percentile) and momentum (46th percentile) tempers our overall conviction. We assign a Narrow Moat rating (43/100), Medium uncertainty, and Standard capital allocation.

Key items to watch: sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

EPAM Systems, Inc. holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 45.1/100 places it at rank #2789 in our full 7,333-stock universe. At $8.4B in market capitalization, EPAM Systems, Inc. is a mid-cap player in the Services space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 22%, though momentum at the 46th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 30% (-29.6pp vs sector) narrow to operating margins of 11% (+7.1pp vs sector) and net margins of 7.9%, yielding a gross-to-net conversion rate of 26%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $128.90, EPAM Systems, Inc. is trading near fair value based on current fundamentals. Our value factor score of 60/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 18.9x (a 20% discount to the sector median of 23.7x), EV/EBITDA of 11.6x (near the sector median), P/B of 2.1x, P/S of 1.5x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Medium uncertainty rating to EPAM Systems, Inc.. The stock presents a balanced risk profile: elevated market sensitivity (beta of 1.35). While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.35). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 50th percentile and quality factor at the 54th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our medium uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate EPAM Systems, Inc.'s capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 10.9%, and the balance sheet is managed within acceptable parameters (D/E: 30%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; EPAM Systems, Inc. falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. Absent a dividend, the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, EPAM Systems, Inc. receives a Reduce rating with a composite score of 45.1/100 (rank #2789 of 7,333). Our quantitative framework assigns a Narrow Moat (43/100, trend: stable), Medium uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 47/100.

Our analysis does not support a constructive view on EPAM Systems, Inc. at this time. The combination of the current quantitative profile, medium uncertainty, and standard capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.