Endava shares target cut, keeps positive rating on market challenges By Investing.com

On Friday, Susquehanna adjusted its outlook on Endava PLC (NYSE:) shares, a leading software development company, by reducing its price target to $55 from the previous $66 while maintaining a Positive rating on the stock. The firm’s analysis cited a challenging demand environment and prolonged decision-making processes in the industry as key factors influencing the decision. Despite these hurdles, signs of market stabilization were noted.

The company’s CEO has acknowledged the current market difficulties, which have contributed to margin pressures due to near-term restructuring costs. However, there is an optimistic view for the future as Endava is expected to increase its workforce in the fiscal year 2025. This anticipated growth is seen as a positive sign for the company’s prospects.

Susquehanna has revised Endava’s financial estimates, taking into account the impact of a weaker British Pound to U.S. Dollar exchange rate and adjusting expected revenue and margin trajectories. The firm’s stance remains positive, underpinned by the belief that the application development sector will find its footing and that Endava will continue to assert its significance in the market.

The new price target of $55 is based on a 25-fold multiple of Endava’s forecasted fiscal year 2026 earnings per share (EPS) of £1.65. This valuation reflects Susquehanna’s confidence in the company’s potential to navigate through the current market challenges and emerge with a stable growth trajectory.

In other recent news, Endava PLC has been facing financial pressure, as evidenced by its first quarter of fiscal year 2025 earnings report, which revealed lower-than-expected results. The company’s full-year outlook did not meet expectations either, prompting Citi to reduce its price target for Endava from $33.00 to $30.00, while maintaining a Neutral rating. Factors contributing to this disappointing outlook include ongoing macroeconomic challenges, a decline in client spending, and certain market vulnerabilities.

Endava’s Q4 FY’24 revenue saw a marginal increase of 2.4% year-over-year to GBP194.4 million, while the full fiscal year 2024 revenue declined by 6.8% to GBP740.8 million. Despite these challenges, the company is making strategic moves to improve its prospects.

The acquisition of GalaxE, the launch of Dava.X specializing in AI, cloud, and cybersecurity, and the formation of strategic partnerships with OpenAI are among the steps taken by Endava to enhance its diversification and support future growth.

These are the recent developments as Endava navigates a challenging economic landscape. The company is expected to continue its efforts to improve business performance and stimulate growth. However, the Neutral rating from Citi suggests a cautious stance on the stock’s near-term performance potential.

InvestingPro Insights

Following Susquehanna’s revised outlook on Endava PLC (NYSE:DAVA), it’s important to consider additional insights from InvestingPro that may provide a broader context for investors. Despite recent market fluctuations, Endava holds more cash than debt on its balance sheet, suggesting a level of financial resilience. Moreover, analysts remain optimistic about the company’s profitability, predicting that Endava will be profitable this year.

InvestingPro data shows a market capitalization of $1.61 billion, with a current P/E ratio standing at 75.49, which adjusts to a more modest 30.09 when considering the last twelve months as of Q3 2024. This adjustment indicates a potential undervaluation relative to the company’s earnings. Moreover, the company’s revenue for the last twelve months as of Q3 2024 was $928.9 million, despite a decrease in revenue growth during the same period. This revenue base provides a solid foundation for the company’s operations.

For investors seeking a deeper dive into Endava’s performance and future outlook, there are additional InvestingPro Tips available, offering a comprehensive analysis of the company’s financial health and market position. These insights can be an invaluable resource for making informed investment decisions.

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