Lake Street Capital Markets has updated its outlook on CPI Card Group (NASDAQ:PMTS (TSX:PMTS)), increasing the price target to $33 from the previous $22 while keeping a Buy rating on the shares.
The firm's analyst cited the company's strong second-quarter top-line performance and an improved revenue forecast for the remainder of the year as reasons for the adjustment.
Despite softer earnings that may have disappointed some investors, the analyst expressed optimism about the company's future, particularly noting the expectation of diminishing inventory headwinds in the second half of 2024.
The analyst believes that these factors, combined with CPI Card Group's shares trading at 11 times the projected 2025 GAAP earnings per share, present a favorable risk/reward scenario for investors.
CPI Card has priced $285 million of 10.000% senior secured notes due in 2029. This move is part of a strategy to redeem all outstanding 8.625% senior secured notes due in 2026. The notes will be guaranteed by CPI Card Group and its wholly-owned domestic subsidiaries, securing the issuer's assets with certain exceptions.
CPI Card Group also reported a 7% decline in net sales for the first quarter of 2024, despite sequential growth in net sales, net income, and adjusted EBITDA.
This growth was primarily driven by significant expansion in the prepaid business and card services. In addition, the company is venturing into digital solutions, supported by a new contract promising increased sales through 2029.
InvestingPro Insights
According to the latest data from InvestingPro, CPI Card Group (NASDAQ:PMTS) showcases a combination of financial metrics that may interest investors looking for growth and value. The company's market capitalization stands at a solid $317.88 million, with a Price/Earnings (P/E) ratio of 18.8, suggesting a reasonable valuation relative to earnings. Additionally, the company's strong performance over the last three months is reflected in a 56.95% price total return, indicating robust investor confidence.
InvestingPro Tips highlight that CPI Card Group has a high shareholder yield and a valuation that implies a strong free cash flow yield. These factors, coupled with the fact that the company's liquid assets exceed short-term obligations, provide a compelling case for the company's financial health and potential for profitability. Moreover, analysts predict the company will be profitable this year, which aligns with the positive outlook presented by Lake Street Capital Markets.
For investors seeking further insights, InvestingPro offers additional tips on CPI Card Group, which can be found at https://www.investing.com/pro/PMTS. These tips could serve as valuable resources for making informed investment decisions.
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