On Tuesday, Compass Point maintained a Buy rating on CompoSecure Inc. (NASDAQ:CMPO) and raised its price target to $14.50 from the previous $11.50. This adjustment follows CompoSecure's second-quarter earnings report from last week, which marked the company's second consecutive earnings beat in 2024.
Compass Point's decision comes after reviewing CompoSecure's financial performance and prospects. The firm's analysts are forecasting results at the higher end of CompoSecure's own narrowed guidance range, which anticipates net sales between $418 million and $428 million and adjusted EBITDA of $150 million to $157 million for the calendar year 2024.
Looking ahead, Compass Point has also set its calendar year 2025 estimates for CompoSecure at $455 million in net sales and $176 million in adjusted EBITDA. These projections are based on an anticipated top-line growth of approximately 6.7%, a gross margin of 52%, and a breakeven contribution from Arculus, CompoSecure's digital security platform.
The firm also expects CompoSecure's financial results to become clearer and attract a broader investor base following the elimination of the company's dual-class share structure. This change was a result of the sale of CompoSecure's private equity sponsor stake to Resolute Holdings, thereby removing the tax distributions to Class B units.
According to Compass Point, this deal should free up $20 million in cash flow and allow for higher normalized multiples for CompoSecure's metal card business, which holds a significant market share and is experiencing growth in an expanding market.
The raised price target of $14.50 is based on an 8-9x EBITDA multiple or approximately 11.5-12x P/E multiple, considering the potential of the Arculus authentication business. Arculus is expected to continue securing white label deals, like the recent one with Fiserv (NYSE:FI), which could provide additional value to CompoSecure's stock.
In other recent news, CompoSecure, Inc. has undergone a significant change in its ownership structure. Investment firm Resolute Holdings I, LP has agreed to acquire a majority interest in the company, leading to the elimination of CompoSecure's dual-class stock structure. This transaction involves Class B stockholders exchanging their holdings for Class A common stock, which will then be sold to an entity affiliated with Resolute.
The company also reported a Q1 increase of 9% in net sales, reaching a record $104 million, and a Q2 net sales record of $108.6 million, marking a 10% increase from the previous year. In addition, CompoSecure has entered into a partnership with Robinhood (NASDAQ:HOOD) Markets, Inc., and Fiserv to produce the Robinhood Gold Card.
Lastly, CompoSecure has disclosed the pricing of a secondary stock offering by certain shareholders, aiming to raise gross proceeds of $45.5 million.
These are among the recent developments that are shaping the future of CompoSecure.
InvestingPro Insights
CompoSecure Inc. (NASDAQ:CMPO) has been garnering positive attention following its impressive second-quarter earnings report and the subsequent upgrade from Compass Point. To provide further context to investors, here are some key insights based on real-time data from InvestingPro and InvestingPro Tips:
InvestingPro Data indicates a market capitalization of $925.57 million, reflecting the company’s size and market presence. The P/E Ratio stands at a competitive 8.51, suggesting that the stock may be undervalued relative to its earnings. Additionally, the strong revenue growth of 4.71% over the last twelve months, as of Q2 2024, underlines the company's expanding operations.
Two notable InvestingPro Tips for CompoSecure are the high shareholder yield and the expectation of net income growth this year. These tips underscore the company's potential for rewarding investors and the positive outlook on its profitability. Moreover, the fact that three analysts have revised their earnings upwards for the upcoming period adds to the optimism surrounding the stock.
For investors looking for more in-depth analysis and additional tips, InvestingPro features a total of 15 InvestingPro Tips for CompoSecure, which can be accessed for further investment consideration.
These insights, coupled with the strategic moves such as the elimination of the company's dual-class share structure, position CompoSecure as a compelling investment option. The company's strong financial metrics and favorable analyst revisions paint a picture of a company on an upward trajectory.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.