On Tuesday, B.Riley, a financial services firm, increased its stock price target for CPI Card Group (NASDAQ: NASDAQ:PMTS (TSX:PMTS)) to $34, up from the previous target of $26, while maintaining a Buy rating on the stock. The adjustment follows CPI Card Group's announcement of second-quarter sales that surpassed expectations and an improved revenue forecast for the future.
CPI Card Group, a provider of financial card production and related services, reported a 3.4% year-over-year increase in revenue to $119 million for the second quarter ended June 30, 2024. This figure exceeded B.Riley's projection of $114 million. Although earnings per share (EPS) of $0.51 fell short of the forecasted $0.57, the firm emphasized the company's growth prospects as a more critical factor for the stock's performance.
The company's prepaid segment, which saw a 9% year-over-year growth, was a significant contributor to the quarter's success. Moreover, the debit and credit segment demonstrated a resurgence, with a 2.6% rise. Looking ahead, CPI Card Group has revised its sales growth expectations to mid-single digits, an upgrade from the previously anticipated slight increase.
Despite elevated channel inventories, CPI Card Group's performance in the second quarter and the raised guidance for the latter half of the year were seen positively. B.Riley also noted signs of normalization in the payment sectors it monitors, bolstering confidence in the forecasted growth for the second half of 2024 and into 2025.
The firm has slightly adjusted its sales forecast for 2024, now expecting a 4% growth, up from the previous estimate of approximately 1%. For 2025, B.Riley has raised its revenue forecast for CPI Card Group to $496 million, indicating a 7% year-over-year increase, with an EPS forecast increased to $2.49 from $2.15.
The new price target of $34 is based on a modest multiple of 13.5 times the forecasted earnings for 2025, suggesting that there is still room for the stock's price to rise from its current levels.
In other recent news, CPI Card Group Inc . announced the pricing of $285 million of 10.000% senior secured notes due 2029 through its subsidiary, CPI CG Inc., with the intention to redeem all outstanding 8.625% senior secured notes due 2026.
The company also reported a 7% decline in net sales for the first quarter of 2024 but experienced sequential growth in net sales, net income, and adjusted EBITDA, bolstered by significant growth in the prepaid business and card services.
The company is expanding into digital solutions, supported by a new contract that promises increased sales through 2029. Roth/MKM maintained its Buy rating on CPI Card Group, citing confidence in the company's growth prospects, expecting resolution of the excess card inventory by 2024 and an anticipated uptick in customer purchasing patterns.
The growth in card issuance, partly due to the rise of fintech companies and gig economy employers, is seen as a positive trend for the company. Despite a revised free cash flow forecast due to initial incentives tied to the new contract, CPI Card Group maintains a robust cash reserve of $17.1 million and has made no borrowings against their $75 million ABL revolver. These are recent developments that highlight the company's strategic approach to overcoming the current sales decline and its commitment to long-term growth.
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