J.P. Morgan moved Endava to an Underweight rating from Neutral and slashed its December 2026 price target to $5 from $9 following another quarter that fell short of expectations and a downgraded full-year outlook. The brokerage warned that persistent execution shortcomings, slow conversion of pipeline opportunities and weak client demand could continue to weigh on both growth and profitability despite the stock's prior sharp decline.
Endava reported fiscal third-quarter revenue of 3179 million, a figure that missed both Wall Street estimates and the company's own guidance. Adjusted earnings per share came in at 30.05, below consensus, as margins weakened significantly. Management linked the deterioration in margins to lower utilization and increased spending tied to AI-related initiatives.
Company executives pointed to a number of factors behind the slowdown. These included delays in deal conversions, greater macroeconomic caution among clients, disruptions related to activity in the Middle East, and extended implementation timelines for large, outcome-based AI contracts. J.P. Morgan said these items compound broader structural questions around Endava's reliance on time-and-materials contracts and uneven delivery execution.
Reflecting a dimmer outlook, the bank cut its fiscal 2026 and 2027 earnings forecasts by more than 40%, citing slower growth expectations and continued margin pressure. Endava now anticipates fiscal 2026 revenue in the range of 3722 million to 3726 million, down from prior guidance of 3736 million to 3750 million. The company's adjusted EPS guidance was revised to 30.45-0.49, down from the earlier 30.80-0.86 range.
J.P. Morgan noted that AI-related revenues represented roughly 15% of third-quarter sales, and that Endava is increasingly pursuing larger outcome-based AI engagements. However, the bank cautioned that these larger AI deals are taking longer to close and to scale, which limits the potential for near-term upside.
While analysts at J.P. Morgan said earnings might be nearing a trough, they emphasized that Endava currently lacks clear catalysts that would support a durable reacceleration in growth. The report suggested that several quarters of consistent execution improvement would likely be necessary to restore investor confidence.
Implications for markets and sectors
- Technology services and software outsourcing sectors may face heightened investor scrutiny given Endava's execution and contract-mix concerns.
- AI-related revenue growth may be constrained in the near term as outcome-based contracts take longer to scale, affecting expectations for companies shifting to performance-linked models.
- Investors focused on revenue predictability and margin stability will likely reassess exposure to firms with significant time-and-materials contract footprints.
Outlook
J.P. Morgan's downgrade and substantial lowering of earnings estimates underscore investor concerns around the predictability of Endava's top-line and the company's ability to execute at scale. Management's revised guidance and the described headwinds point to a period in which the market will be watching for sustained signs of consistent delivery and pipeline conversion before revising expectations higher.