On Tuesday, TD Cowen adjusted its outlook on Napco Security Technologies, Inc. (NASDAQ: NASDAQ:NSSC), lowering the price target to $46 from the previous $60 while maintaining a Buy rating on the stock. The firm's analyst cited a mix of factors influencing the decision, noting that although the company's recent results did not meet estimates, there were several positive aspects to consider.
The analyst highlighted that Napco's radio sales showed a strong recovery, and the recurring revenue matched expectations. Additionally, the gross margin on recurring revenue surpassed predictions. Despite these positive indicators, there was an unexpected decline in locking systems sales, which the analyst believes will be temporary.
TD Cowen anticipates that Napco will return to growth in the second half of the year and expects a rapid growth trajectory in fiscal year 2026. The new price target of $46 is based on a 20 times multiple of the forecasted adjusted EBITDA for fiscal year 2026.
The lowered price target reflects a recalibration of expectations in light of the mixed financial results and market conditions. Despite the reduction, the firm continues to see Napco as a valuable investment, as evidenced by the maintained Buy rating.
In other recent news, Napco Security Technologies has seen a series of adjustments to its financial outlook following the company's first fiscal quarter results. Analyst firms Craig-Hallum, Lake Street Capital Markets, and Needham have all revised their price targets for Napco, citing a slowdown in the Locking segment that resulted in a shortfall in both sales and earnings.
Napco reported a 7% year-over-year increase in earnings per share and a 6% rise in revenues for the first quarter of 2025. Although equipment sales declined, the company saw a notable 23% increase in cellular radio sales and a 22% growth in recurring monthly service revenue.
These developments, along with the resolution of issues with excess inventory levels of cellular radios, are expected to positively impact the company's Recurring Service Revenues and overall financial performance.
Moreover, Napco reported record Q1 2025 sales of $44 million, marking the 16th consecutive quarter of increasing sales. The company's net income rose to $11.2 million, a 7% increase from the previous year. The firm operates debt-free and maintains robust cash reserves of $102 million.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Napco Security Technologies' financial position and market performance. Despite the recent price target reduction by TD Cowen, several InvestingPro metrics suggest potential upside for the company.
Napco's P/E ratio stands at 28.38, with an adjusted P/E ratio of 24.38 for the last twelve months as of Q1 2025. This relatively moderate valuation, combined with a low PEG ratio of 0.3, aligns with TD Cowen's maintained Buy rating and suggests the stock may be undervalued relative to its growth prospects.
InvestingPro Tips highlight that Napco holds more cash than debt on its balance sheet, indicating a strong financial position. This solid foundation could support the company's anticipated return to growth in the second half of the year, as predicted by TD Cowen.
Another relevant InvestingPro Tip notes that the stock has taken a significant hit over the last week, with a 1-week price total return of -12.5%. This recent dip might present an opportunity for investors who share TD Cowen's optimistic long-term outlook on the company.
For those seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Napco Security Technologies, providing a deeper understanding of the company's financial health and market position.
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