EPAM Systems, Inc.EPAMNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $335.51 per share(market-calibrated)

+138.1%

Upside to Fair Value

Current

$140.90

Pure Model

$342.49

Fair Value

$335.51

Bull Case

$428.98

Bear Case

$261.64

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

0.50%

Calibrated Growth

2.61%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $342.49.

What's Driving This Ratingfor EPAM

✓

CapEx already efficient

CapEx at 1.08% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 11.63% — below the sector mature average of 25.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.0B (22.20% margin).

→

Moderate revenue growth

Analyst consensus projects 6.52% revenue growth, fading to 3.75% by Year 10. Revenue reaches $8.9B (vs $5.5B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $223.24/share (12.2x terminal FCF) while exit multiple gives $461.73/share (39.0x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 325bps below the model's 3.75%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 71.88% indicates efficient cash generation. FCF reaches $1.6B by Year 10 (17.83% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.77

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)12.46%

Cost of Debt

Pre-tax Cost of Debt0.24%

Tax Rate25.30%

After-tax Cost of Debt0.18%

Equity Weight (E/V)98.21%

Debt Weight (D/V)1.79%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (98.21% × 12.46%) + (1.79% × 0.18%)

= 12.24%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$5.8B	$6.7B	$7.4B	$7.9B	$8.9B
EBIT	$676M	$782M	$1.2B	$1.6B	$2.0B
Tax	$171M	$198M	$307M	$393M	$498M
NOPAT	$505M	$584M	$907M	$1.2B	$1.5B
+ Depreciation	$151M	$175M	$192M	$207M	$231M
- Capex	$63M	$73M	$80M	$86M	$96M
- Δ NWC	$27M	$37M	$20M	$22M	$24M
Free Cash Flow	$566M	$650M	$999M	$1.3B	$1.6B
Discount Factor	0.891	0.707	0.561	0.446	0.315
Present Value	$505M	$459M	$561M	$561M	$499M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.6B

Terminal Growth Rate3.75%

WACC12.24%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$19.3B

PV of Terminal Value$6.1B

Exit Multiple Method

Year 10 EBITDA$2.2B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$61.6B

PV of Terminal Value$19.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$5.2B

PV of Terminal Value$6.1B

Enterprise Value$11.3B

(-) Net Debt-$1.2B

Equity Value$12.5B

Shares Outstanding56M

Price per Share$223.24

Exit Multiple Method

PV of Projected FCFs$5.2B

PV of Terminal Value$19.4B

Enterprise Value$24.7B

(-) Net Debt-$1.2B

Equity Value$25.8B

Shares Outstanding56M

Price per Share$461.73

Pure Model Fair Value

$342.49

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
10.24%	$405.47	$411.09	$417.59	$425.17	$434.13
11.24%	$368.11	$372.11	$376.65	$381.84	$387.83
12.24%	$336.27	$339.20	$342.49	$346.18	$350.37
13.24%	$308.71	$310.92	$313.36	$316.07	$319.10
14.24%	$284.59	$286.28	$288.13	$290.17	$292.43

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$261.64

85.7% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 2.21

Base Case

$342.49

143.1% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.77

Bull Case

$428.98

204.5% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.50

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth6.52%

Year 3 Revenue Growth7.80%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin11.63%

Terminal EBIT Margin25.00%

Tax Rate25.30%

Historical Capex / Rev1.08%

NWC / Revenue7.58%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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