This analysis was originally published as a stock note by Morningstar Equity Research.
Endava’s DAVA third-quarter results and fourth-quarter guidance for fiscal 2025 missed FactSet consensus as large deals in the pipeline continue to get delayed. Shares fell 27%.
Why it matters: Endava cut fiscal 2025 revenue guidance for the second quarter in a row. Moreover, the 3.5% reduction for the fiscal year, at the midpoint, is large given only one quarter remains. Endava continues to struggle with pipeline conversion and now faces a currency headwind.
- Market reaction was likely particularly harsh given peer EPAM Systems reported on May 8 with generally positive results, including 1.4% organic revenue growth in the quarter (versus negative organic growth for Endava) and further improvement expected in the next quarter.
The bottom line: We cut our fair value estimate to $35.50 from $42 for narrow-moat Endava. Shares continue to look undervalued.
- We’ve cut our near and midterm estimates for Endava as we now believe a meaningful recovery before fiscal 2027 is unlikely. While Endava has some company-specific challenges, we continue to believe the company will eventually benefit from a cyclical recovery in IT services.
- The market has clearly lost patience with Endava and is now incorporating very low expectations until some meaningful improvement is reported. We surmise the current price essentially reflects no improvement in the future, which is too bearish in our opinion.
Coming up: Fourth-quarter guidance is for revenue of GBP 186 million-GBP 188 million (negative 1% to 0% constant-currency growth) and EPS of GBP 0.22-GBP 0.24.
- Fiscal 2025 guidance is for revenue of GBP 771.5 million-GBP 773.5 million (6%-6.5% constant-currency growth) and EPS of GBP 1.11-GBP 1.13.
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