On Friday, Deutsche Bank adjusted its outlook on Endava PLC (NYSE:DAVA), a leading software development company. The firm's analyst revised the price target downward to $39.00 from the previous $53.00 while maintaining a Hold rating on the stock.
This change comes in the wake of Endava's second-quarter fiscal year 2024 earnings report, which showed a year-over-year constant currency revenue decline of 8.1% and adjusted earnings per share (EPS) of £0.30.
The market reacted sharply to the company's latest guidance, which forecasts a decline of 7% to 5% in constant currency for the full year 2024. This outlook deviates significantly from earlier expectations of a material acceleration in the latter half of the fiscal year.
The company cited increased client caution, particularly in the Payments and Banking & Capital Markets sectors, which has resulted in longer sales cycles and delayed deal implementations, despite having a robust pipeline.
In addition to the financial results and guidance, Endava announced its acquisition of the New Jersey-based GalaxE Group, a move expected to bolster its Healthcare vertical and expand its presence in the United States. Furthermore, the acquisition is set to enhance the company's delivery capabilities in India.
The completion of this acquisition is anticipated in April, and Deutsche Bank has incorporated the expected quarterly revenues from GalaxE, estimated at around £26 million with a growth rate of approximately 10%, into its model starting from the fourth quarter of fiscal year 2024.
Given the subdued forecast, Deutsche Bank has also adjusted its earnings projections for Endava. The firm lowered its fiscal year 2024 EPS estimate by £0.45 to £1.16 and reduced its projections for fiscal years 2025 and 2026 by £0.45 and £0.35 to £1.84 and £2.31, respectively.
The revised price target of $39 is based on approximately 15 times the projected calendar year 2025 EPS, reflecting the bank's updated forecasts. For further insights on the IT Services industry trends that are currently influencing the market, the bank refers to its comprehensive report titled "Deep Dive on Key IT Services Trends."
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