Zinger Key Points
- Goldman Sachs sees modest IT services beats in Q4 2024, expects 2025 guidance to reflect improving customer demand trends.
- Analyst favors IBM, Globant, and EPAM for 2025 growth, highlighting software growth, mainframe refresh and high-end engineering recovery.
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Goldman Sachs analyst James Schneider expects fourth-quarter 2024 reports to reflect gradual demand improvement in 2025 guidance. Based on intra-quarter management commentary and Accenture ACN
Schneider expects modest beats for his IT Services coverage in the quarter.
The analyst noted that 2025 guidance will reflect modest revenue acceleration that mirrors a gradually improving customer demand environment and monitored Tata Consultancy Services and Infosys INFY reports.
Despite the bottoming in fundamentals, Schneider noted investor expectations have modestly deteriorated in recent weeks, given stiffer FX headwinds across the coverage.
As the analyst continues to see cyclical headwinds moderate, he now prefers applications-focused names like International Business Machines Corp IBM, Globant GLOB, and EPAM Systems, Inc EPAM.
He also noted that IBM remains well-positioned for growth as software growth continues to reflect accelerating trends versus history. The analyst’s estimates for the fourth quarter remain broadly in line with the Street’s but he expects 2025 guidance to reflect higher revenues from Red Hat’s outperformance and the upcoming mainframe refresh in the second quarter of 2025.
Investors will likely focus on software growth and portfolio mix as key metrics, with consulting trends under greater scrutiny.
Schneider noted IBM can pivot its software portfolio to mid- to high-single-digit growth while taking share in consulting, with room for multiple expansions. Investor Day is the next catalyst for the stock.
Schneider projected fourth-quarter revenue of $17.62 billion and adjusted EPS of $3.76.
He noted that Globant expects a solid growth outlook with solid margin expansion in 2025. The analyst expects Globant to deliver a largely in-line quarter but thinks 2025 guidance will reflect revenue acceleration and steady margin expansion supported by its unique positioning in high-growth verticals amid a gradual cyclical recovery. Schneider expects investors to focus on revenue growth trends to gauge the rate of potential revenue re-acceleration in 2025.
The analyst projected fourth-quarter revenue of $649 million and adjusted EPS of $1.74.
EPAM’s 2025 outlook is likely to reflect modest organic growth, as per Schneider. The analyst expects an in-line fourth quarter with 2025 guidance that reflects stabilizing to improving discretionary trends, as he noted the company is set to capture recovering demand for new technology builds and other high-end engineering services. Schneider noted investors will be focused on the pace of EPAM’s organic re-acceleration given improving fundamentals in 2025.
Schneider projected fourth-quarter revenue of $1.21 billion and adjusted EPS of $2.78.
Price Actions: IBM stock is down 0.47% at $216.38 at last check Tuesday. GLOB is down 1.14% and EPAM is up 0.03%.
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