BofA maintains Endava stock Neutral with $20 price target

On Wednesday, BofA Securities maintained a Neutral rating and a $20.00 price target for Endava PLC (NYSE:DAVA) shares. The decision comes after the company’s recent performance, which saw its shares rise significantly compared to the S&P 500 over the past month. Despite this outperformance, Endava’s stock declined following the announcement of its third fiscal quarter revenue miss and a lowered forecast for fiscal year 2025, affecting both revenue and earnings per share (EPS) expectations.

Tyler DuPont (NYSE:DD) from BofA Securities pointed out the challenges faced by Endava, noting a persistent softness in demand across various regions, with North America being particularly affected. Additionally, the company has experienced difficulties in converting its business pipeline into actual sales. These factors have led to the company’s latest financial results falling short of expectations.

In response to the revenue miss and the reduced forecast, Endava has increased its share repurchase authorization by $50 million. This brings the total outstanding authorization to approximately $110 million, which represents around 10% of the company’s current market capitalization of $901 million. The company’s trailing twelve-month revenue stands at $951 million, with a gross profit margin of 24%. The additional authorization is seen as a move to provide some support against further downside risk to the stock price.

Despite the increased share repurchase plan, BofA Securities remains cautious about Endava’s prospects. The firm emphasizes the need for Endava to demonstrate an improvement in its organic constant-currency growth profile. Until such improvement is evident, the firm suggests that investors adopt a wait-and-see approach to the stock, hence the maintenance of the Neutral rating. InvestingPro data reveals the stock trades at elevated multiples with a P/E ratio of 135x and an EV/EBITDA of 21x. Subscribers can access 8 additional ProTips and a comprehensive Fair Value analysis in the Pro Research Report.

In other recent news, Endava reported its Q2 FY2025 earnings, revealing an adjusted diluted EPS of 0.3p, which surpassed analyst forecasts of 0.25p. However, revenue fell slightly short of expectations, coming in at £195.6 million. The company also provided guidance for Q3 FY2025, projecting revenue between £198-200 million. In another development, Endava has joined OpenAI’s Beta Services Partner Program, aiming to strengthen its position in the AI market. Additionally, Endava and AlixPartners have announced a strategic partnership to enhance digital transformation solutions for clients across several industries. Analyst firm Needham adjusted its financial outlook for Endava, reducing the price target from $43.00 to $38.00 but maintaining a Buy rating on the shares. This revision follows Endava’s mixed Q2 results, with a noted decline in revenue from the TMT sector but better-than-expected profit margins. Despite short-term challenges, analysts at Needham highlight the company’s attractive valuation and potential growth from AI adoption.

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