EPAM SYSTEMS, INC. (EPAM): what the price requires
The current priced-in claim for EPAM SYSTEMS, INC. (EPAM) is temporarily suppressed because the live engine record is unavailable. The dated report remains a snapshot, not a current market read.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/EPAM
Headline
| Field | Value |
|---|---|
| Ticker | EPAM |
| Company | EPAM SYSTEMS, INC. |
| Current price | $86.65/sh |
| Composition | Time-and-materials 80% / Fixed-price 19% / Licensing and other revenues 1% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 1.5% |
| Operating margin today | 8.9% |
| Margin compression implied | -7.4pp |
| Multiple paid | 8x operating income |
The operating-margin requirement is derived from the framework's value band at year 11, a separately labeled basis from the headline growth/duration solve.
The price sits below what even a 5%/yr operating-profit decline would warrant; the inversion reports a bound, not a solved growth path.
Solve inputs: computed at a 11.1% cost of capital with 4% terminal growth over a 5-year stage.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -1.87σ |
| cohort percentile (of 177 peers) | 6 |
| implied end-window share | 0% |
Valuation X-Ray
The price is supported by asset-based and earnings-power and relative-multiple and growth-DCF value. A value/asset-supported name, not a pure growth bet.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 1.02x | 5 | expensive |
| Earnings | 1.00x | 5 | justifies |
| Relative | 0.40x | 5 | justifies |
| Growth | 0.58x | 3 | justifies |
Families that justify the price: Asset, Earnings, Relative, Growth
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.9%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $300.00 | 0.29x | yes | FCF base $0.6B, growth 14% (input: historical growth), terminal g 4.0%, WACC 8.9%, 6yr projection |
| DCF Exit Multiple | Growth | $150.46 | 0.58x | yes | Exit EV/EBITDA: 4.0x / 6.0x / 8.0x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $218.78 | 0.40x | yes | P/E 25.86x (blended: static sector reference 35x + trailing (TTM) 12x), scenarios: 21.4x / 25.9x / 30.4x (bear / base = reference held flat / bull), EV/EBITDA 17.38x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $77.16 | 1.12x | yes | BV/sh $63.32, ROE (TTM) 11.3%, ke 9.3% |
| Two-Stage Excess Return | Asset | $84.83 | 1.02x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $82.52 | 1.05x | yes | Rev $5.6B, growth 14% (input: historical growth; tapered), Terminal P/S: 0.7x / 0.8x / 1.0x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $83.52 | 1.04x | yes | EPS $6.96, growth 0% (input: historical EPS growth), PEG=88.31 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $89.54 | 0.97x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.55B × (1−32%) / WACC 8.9% → EPV (no growth) |
| Residual Income | Asset | $86.33 | 1.00x | yes | BV $63.32 + 5yr PV of (ROE (TTM) 11.3% − Kₑ 9.3%) × BV; BV grows 7.3%/yr |
| Graham Number | Asset | $99.58 | 0.87x | yes | √(22.5 × EPS $6.96 × BVPS $63.32) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $319.43 | 0.27x | yes | EBITDA $0.66B × sector EV/EBITDA 25.0x |
| FCF Yield | Earnings | $122.29 | 0.71x | yes | FCF $543.6M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $86.73 | 1.00x | yes | SBC-adj FCF $0.37B (FCF $0.54B − SBC $0.18B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $51.19 | 1.69x | yes | EPS $6.96 × (8.5 + 2×0.1%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $21.16 | 4.09x | yes | BV $63.32 × (ROIC 3.0% / WACC 8.9%) |
| P/Sales Sector | Relative | $820.25 | 0.11x | yes | Revenue $5.56B × sector P/S 8.0x |
| PEG Fair Value | Relative | $34.80 | 2.49x | yes | EPS $6.96 × (PEG 1.5 × growth 0.1% (input: historical EPS growth)) → PE 0.2x |
| Earnings Yield | Earnings | $75.24 | 1.15x | yes | EPS $6.96 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net cash | $873.6m |
| Net debt / NOPAT (after-tax) | -2.62x (net cash) |
| Net debt / operating income (pre-tax) | -1.79x (net cash) |
| Share count CAGR (buyback) | -2.1% |
| Burning cash | no |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- The first quarter beat at the high end: revenue of $1.4 billion grew 7.6 percent, non-GAAP operating margin improved to 14.3 percent, non-GAAP EPS rose 18.7 percent to $2.86, and AI-native revenue exceeded $125 million toward a $600 million full-year target. Management still trimmed full-year revenue guidance to 4 to 6.5 percent on macro and North American client-decision delays.
- The structural exposure for a people business is its workforce, not its debt: EPAM has about $874 million of net cash and almost no debt, but it carries delivery-geography concentration, with roughly 15 percent of delivery still in Ukraine, plus attrition near 11 percent and utilization around 76 percent.
Bull Case
Lead with the loudest risk, because it is real and it is why the stock is cheap: EPAM is a software-engineering services firm with meaningful delivery exposure to Ukraine, its end demand has slowed amid macro uncertainty, and management just trimmed full-year revenue guidance to 4 to 6.5 percent on North American client-decision delays. That is the bear case, and the stock has fallen far enough to reflect it, trading below its own historical valuation with an own-history z-score near negative 1.9. The question is whether the data supports the fear or undermines it, and the operating results undermine it. First-quarter revenue of $1.4 billion grew 7.6 percent and hit the high end of guidance, non-GAAP operating margin improved to 14.3 percent, gross margin expanded 70 basis points, and non-GAAP EPS rose 18.7 percent to $2.86. A company supposedly in trouble does not expand margins and grow EPS at a double-digit rate.
The differentiator is that EPAM is repositioning around AI delivery rather than being disrupted by it. AI-native revenue exceeded $125 million in the quarter, up nearly 20 percent sequentially, and management reaffirmed a $600 million full-year target. The company's filings describe platforms like EPAM AI/RUN and the DIALX Lab that integrate advanced AI techniques into its delivery model (EPAM FY2025 10-K, accession 0001352010-26-000015), and it has built a partnership ecosystem, with more than a thousand engineers certified on leading AI tooling. For a high-end engineering firm, AI is a way to deliver more value per engineer, which can lift margins even if headcount growth slows. This is the rare IT-services name leaning into the transition with a concrete revenue line to show for it.
The balance sheet and valuation make the risk-reward asymmetric. EPAM holds about $874 million of net cash and roughly $1.8 billion of total cash with almost no debt, so it has zero financial fragility and is funding a $1 billion buyback, repurchasing $125 million of stock in the quarter. The valuation is the clincher: the price sits below the inversion band of $121 to $138, earnings power value lands near $90, the simple excess-return method near $77 right at the price, and the relative-valuation method near $215. Analyst targets cluster around a $215 median. The bull case is a debt-free, cash-rich, margin-expanding engineering franchise that has been priced for a recession that its own numbers do not show, with AI-native revenue providing a growth bridge.
Bear Case
For a services company the balance sheet that matters is the human one, and that is where EPAM's structural fragility lives. The company has no meaningful debt, so the usual leverage analysis does not apply, but its real capital is its delivery workforce, and that workforce carries concentration risk that a debt-free balance sheet cannot offset. Roughly 15 percent of delivery remains in Ukraine, an active conflict zone, and EPAM's filings emphasize the business-continuity plans and global delivery resources it maintains precisely because that geography is at risk (EPAM FY2025 10-K, accession 0001352010-26-000015). Any escalation raises insurance costs, threatens delivery capacity, and erodes client confidence, and the company has already spent years and considerable cost relocating and diversifying after exiting Russia. The structural exposure is geopolitical and operational, and it sits at the heart of the delivery model.
The second pressure is the demand environment and what it does to a people business. Management cut full-year revenue guidance to 4 to 6.5 percent on macroeconomic uncertainty and North American client-decision delays, which matters more for a services firm than for a product company because revenue is billable hours: utilization was about 76 percent and voluntary attrition about 11 percent in the quarter, so when demand softens, EPAM either carries underutilized engineers, a direct margin drag, or reduces headcount and loses capacity it spent years building. The operating leverage cuts both ways, and a prolonged North American slowdown would pressure the very margin expansion the bull case relies on.
The third issue is that AI is both the opportunity and the threat. The same generative-AI tools EPAM is selling can compress the billable-hours model that is its revenue base, because if AI lets clients build software with fewer engineers, the demand for outsourced engineering hours could shrink structurally. The $125 million of AI-native revenue is real but small against a $5.6 billion base, and the durability of a services business in an AI world is the open question the price reflects. The valuation looks cheap, the price below the inversion band and near book value, but cheap on current margins assumes those margins hold through a demand slowdown and an AI transition. The static methods that look attractive, earnings power value near $90 and the excess-return read near $77 (June 27, 2026), are computed on a 9.7 percent margin that a recession or an AI-driven pricing reset would compress. The cash is real and the discount is real, but the human balance sheet is exposed in ways the financial one is not.
Valuation
EPAM is read as a value and asset-supported name, with the price backed by asset, earnings-power, relative-multiple, and growth-DCF value simultaneously. At $76.75 the inversion implies a long-run operating margin of just 1.6 percent against a current margin of 9.7 percent, which is to say the price embeds a severe margin compression, and the own-history z-score near negative 1.9 confirms the stock is trading well below its historical norm.
The X-ray methods cluster around or above the price. The simple excess-return method lands near $77, right at the price, off a $63.32 book value per share and an 11.3 percent ROE, and the two-stage version near $85. Earnings power value lands near $90 on normalized EBIT, residual income near $86, and the discounted-future-market-cap method near $73. The relative-valuation method at $214.54 and the perpetual-growth DCF at $302 are the high outliers, reflecting the depressed current multiple against historical norms. The Peter Lynch read flags overvaluation only because recent EPS growth has been roughly flat, a cyclical artifact.
The synthesis is that nearly every method, the inversion band above $120, the earnings-power value near $90, the excess-return read near $77, and the relative multiple above $200, sits at or above the current price, which says EPAM is cheap on its current earnings power. The deciding variable is whether that earnings power holds: the implied 1.6 percent long-run margin is a bet on severe deterioration, and the actual margin is expanding. If demand stabilizes and the AI transition lifts rather than erodes the model, the gap between the price and the methods closes upward. The risk is that the geopolitical delivery exposure or an AI-driven demand reset compresses the margin toward the implied figure. The asset floor near book value around $63 is the downside anchor; the methods clustering near $90 to $138 are what the price would reclaim if the demand fear proves overdone.
Catalysts
The first-quarter 2026 report on May 7 was the most recent catalyst and a mixed signal. Revenue of $1.4 billion grew 7.6 percent and hit the high end of guidance, non-GAAP operating margin improved to 14.3 percent, and non-GAAP EPS rose 18.7 percent to $2.86, but management lowered full-year revenue guidance to 4 to 6.5 percent on macroeconomic uncertainty and North American client-decision delays. AI-native revenue exceeded $125 million, up nearly 20 percent sequentially, toward a reaffirmed $600 million full-year target. Full-year non-GAAP EPS guidance is $12.98 to $13.28. The next print is the test of whether North American demand stabilizes and whether AI-native revenue keeps scaling.
The forward catalysts are demand, AI execution, and capital return. The trajectory of client decision-making in North America is the swing factor for revenue, and utilization around 76 percent and attrition near 11 percent are the workforce metrics that translate demand into margin. AI execution is the central strategic catalyst, with the EPAM AI/RUN platform and partnerships, including a strategic tie-up with Anthropic, as the vehicles for repositioning the delivery model. Capital return continues through a $1 billion buyback, with $125 million repurchased in the quarter against a cash-rich, debt-free balance sheet. Geopolitical developments affecting the roughly 15 percent of delivery still in Ukraine are the key risk to monitor. Analyst sentiment remains constructive, with a buy-leaning consensus and a median target near $215, though Guggenheim trimmed its target to $200 on near-term risks.
Sources: EPAM Q1 2026 results, BigGo AI-native revenue and guidance, Seeking Alpha guidance and Anthropic partnership, Investing.com Guggenheim target cut.
Peer Cohorts (Per Segment, With Filing Citations)
Core business (reported)
- CTSH (COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION)
- (no filing in the citation store)
- SAIC (Science Applications International Corporation)
- (no filing in the citation store)
- LDOS (Leidos Holdings, Inc.)
- (no filing in the citation store)
- PSN (Parsons Corporation)
- (no filing in the citation store)
- CACI (CACI International Inc)
- (no filing in the citation store)
- KD (Kyndryl Holdings, Inc.)
- (no filing in the citation store)
- DOX (AMDOCS LIMITED)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.