JPMorgan upgrades Endava stock on improved risk/reward

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Tuesday, JPMorgan upgraded Endava PLC stock (NYSE:) from Neutral to Overweight, setting a price target of $49.00. The adjustment comes as the firm recognizes a more appealing risk/reward profile, which has recently experienced a significant decline following a cut in its guidance.

Endava’s shares are currently trading at approximately 14 times the expected adjusted EBITDA for 2024, compared to 19 times for peers EPAM and GLOB.

The analyst at JPMorgan believes that the company’s near-term guidance is realistic, particularly the lower end, and suggests that any indication of revenue stability or sequential growth could lead to a positive shift in investor sentiment.

The current issues faced by Endava are seen as cyclical, and it is anticipated that the growth gap with its Digital peers will narrow or disappear. This outlook is supported by clients’ ongoing digital transformation needs and Endava’s strong positioning in high-growth sectors like Payments.

During a recent investor lunch hosted by JPMorgan, discussions with Endava management provided further insights. The management team, including CFO Mark Thurston, SVP of Catalyst Americas Vince Francis, and Head of IR and ESG Laurence Madsen, shared their perspectives on the company’s direction and strategy.

Endava’s focus on digital transformation services is particularly relevant as businesses across various industries continue to invest in digital capabilities to improve operations and customer experiences. The company’s expertise in areas such as Payments is expected to play a crucial role in its growth trajectory.

The upgrade by JPMorgan reflects a belief in Endava’s potential to overcome its recent challenges and capitalize on the growing demand for digital transformation services. With the stock’s valuation now appearing more attractive, Endava may be positioned for a turnaround as it works to meet its adjusted earnings targets and strengthen its market presence.

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