Endava in focus as BofA initiates coverage

Endava (NYSE:DAVA) was in focus on Friday as Bank of America initiated coverage on the technology consulting firm with a Neutral rating and $29 price target.

Shares were down 3.4% in premarket trading.

“While shares of DAVA have lagged YTD (down ~64%), we believe this is justified given the company’s softer growth and margin profile vs. peers,” analyst Tyler DuPont wrote in a note to clients. “Following several quarters of missed execution and current F25 guide implying flat-ish revenue growth, we view DAVA as a show-me story, and we initiate at Neutral as we look for further improvement in the company’s organic constant-currency growth profile.”

The company has an “attractive near-shore delivery model” and benefits from having “sticky” long-term relationships with blue-chip clients, DuPont said. However, the IT services industry is continuing to face macro demand issues for discretionary spending, which is likely to limit an upside, at least in the near term.

Endava also has some concentration risk, as Payments and Financial Services accounted for roughly 47% of fiscal 2024 revenue and its largest client accounted for approximately 10% of revenue by itself.

Lastly, the company faced integration risk, with the GalaxE acquisition and continued competition from other IT service providers, such as EPAM Systems (EPAM), Globant (GLOB), Accenture (ACN) and Deloitte, DuPont added.