Analyst : Saul Ellison

Prospective Equity Report (8-Nov-16)

EPAM Systems Incorporated (NYSE:EPAM)

Technology Sector OutlookBull

Increase PMI Indicators with Spending Increases in IT Field

LT Revenue Growth at least 20%

Increase in Demand for Cloud Computing for SBU’s in Increasing Globalized World

Companies Continue to consistently Outperform Overall Annual Earnings

Bear

ST Revenue Growth Stymied by Macro Environment

Volatility in Investment into Emerging Technologies

Regulations and Political Interference with pending M&A

CEO : Arkadiy Dobkin (Since 2002)Headquarters : Newtown, PAFounded : 1993Exchange : NYSEEmployed : 18,354

“1st Company to IPO from Outsourcing Industry in Eastern Europe.”- BBC 2012

  EPAM provides software engineering solutions and technology consulting services worldwide. The company offers software product development services, including product research, customer experience design and prototyping, program management, component design and integration, lifecycle software testing, product deployment and end-user customization, performance tuning, product support and maintenance, and managed services, as well as porting and cross-platform migration

EPAM Systems Background

I. Overview

1.) Dynamic Organic Growth

2.) Superior Profitability

3.) Diversifiable Geographic Coverage

4.) Deep Vertical Expertise across multiple Industries

5.) Meaningful Acquisitions

Investment Highlights

Consistent Organic Growth & Geographic Coverage

Past Performance Measures

Deep Diversifiable Vertical Expertise

More per-capita human resources in Central Europe than India and North America stem from Central Europe; with a strong heritage of technology and engineering excellence backed by the educational system focus. (OECD Intelligence Report 2015)

EPAM capitalizes on near shore delivery capabilities for European clients - quickly growing and less penetrated market

Past Performance Measures

ProfitabilityRevenue Growth CAGR ( Past 5 years) – (33.7% vs. Industry Average 16.45%)Operating Income CAGR (Past 5 years) – (57.8 % vs. Industry Average 28.3%)SG&A As % of Revenue Has Decreased in 2012 from 44% to 29% in 2015Effective Tax Rate – (20.66 % vs. Industry Average 36.65) SURP Rating – (8.76 % vs. ACN -7.54)

Stock PerformanceNovember 2, 2012 – $17.74November 2, 2016 - $ 61.25262% Price GrowthHas outperformed the S&P 500 ConsiderablyHas P/E of 32.32 ( ACN:18.6, IBM:12.57)

Top ClientsExpedia, Google, SAP and Oracle

Past Performance Measures

Pivotal Acquisitions

2012 : Thought Corp and Empathy LabIT Consultancy, software engineering and Digital and Omni-channel UXD

2014 : JoinTech, GGA Software Services, Great FridaysHealthcare technology consulting, Technology Services, Scientific information Services, product and service Design Services

2015 : Navigation Arts and Alliance Global ServicesDigital Strategy and User Experience Systems, Software Product Development, Test Automation

2016 : DextreysSoftware engineering and Application Development

Past Performance Measures

Competitor Snap Shot

Competitor Snap Shot

In the 2016 Forbes Fastest Growing Tech Companies, EPAM Systems was Named #6.

On Forbes 100 Fasting Growing Companies EPAM Systems was ranked #59.

Competitor Snap Shot

II. Financial Valuation

EPAM Valuation Model

EPAM Valuation Model

EPAM Valuation Model

Analyst Recommendation

Financial Community Consensus as of 11/08/16

UBS : Strong Buy Consensus Rating (B/H/S)- 89.5%, 10.5%, 0%Barclays : OverweightJP Morgan : Overweight Target Price- $79.03 Upside: 50% Downside: 8.3%Pacific Crest : OverweightWilliam Blair & CO : Out-Perform 5 Year Target Price $111

Recommendation: Buy