Endava Plc DAVA is gaining momentum in the IT services sector, with JPMorgan analyst Tien-tsin Huang highlighting it as a “top pick” with “highest upside in digital IT” for the second half of 2024.

Endava, founded in 2006 in the U.K., is an IT services company specializing in digital transformation through custom software development. It primarily serves clients in payments, financial services, technology, media and telecom, with most of its revenue coming from the U.K. and Europe.

Endava stock commands a market capitalization of $1.76 billion on the U.S. stock market, making it a small-cap stock positioned for near-term growth.

With low market expectations and an attractive valuation, Endava offers a promising risk/reward profile ahead of its FY25 guidance, expected on Sept. 19.

JPMorgan maintains an Overweight rating on Endava stock, setting a price target of $47, implying over 54% upside from current price levels.

JPMorgan Bullish On Endava’s Scope In Digital Transformation

JPMorgan is bullish on Endava’s growth prospects, driven by the increasing digital transformation needs of legacy enterprises. As more industries undergo significant technological disruption, Endava is well-positioned to capitalize on this trend, particularly in fast-growing verticals like payments, banking and telecoms.

Endava's core strength lies in its ability to support digital transformation efforts across these sectors, which have seen rapid growth and change. Huang expects Endava to deliver mid- to long-term organic revenue growth, aligning with the broader high-growth areas of the technology marketplace.

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Valuation Indicates Near-Term Upside Potential

“We see the highest upside in digital IT at DAVA as it trades at the low end of peers' 19-29x NTM multiple range, offering near-term potential upside,” said Huang.

JPMorgan projects the company will achieve more than 20% top-line growth, comparable to similar players like EPAM Systems Inc EPAM and Globant SA GLOB.

Despite concerns about macroeconomic sensitivity in its core verticals and potential margin pressure, JPMorgan believes Endava can overcome these hurdles, especially as digital transformation remains a priority for businesses worldwide. The firm’s exposure to high-growth sectors and its ability to capture market share from competitors make it a solid investment choice in the evolving IT landscape.

As Endava heads into its next earnings report, investors will be watching closely for updates on its FY25 guidance, which could further solidify its position as a long-term winner in the digital IT services space.

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