Napco Security stock rating upgraded by Craig-Hallum on strong earnings

Investing.com - Craig-Hallum upgraded Napco Security Technologies, Inc. (NASDAQ:NSSC) from Hold to Buy on Tuesday, raising its price target to $40.00 following the company’s strong fiscal fourth-quarter performance. The stock has already shown strong momentum, gaining over 9% in the past week. According to InvestingPro analysis, the company appears slightly undervalued at its current market capitalization of $1.29 billion.

The upgrade comes after Napco delivered significant earnings that exceeded expectations, with growth in both equipment revenues and recurring service revenues. With a robust gross profit margin of 56% and an impressive current ratio of 6.75, InvestingPro data reveals the company’s strong financial position. Craig-Hallum noted that the demand environment has "markedly improved" following earlier concerns about tariffs, with larger distributors returning to normal ordering patterns.

Price increases implemented in response to tariffs have been accepted by customers without significant resistance, positioning the company to improve equipment gross margins in fiscal year 2026. The research firm also highlighted that Napco’s inventory levels have decreased, reducing risk for the upcoming fiscal year.

Craig-Hallum pointed to Napco’s advantageous position regarding tariffs, as the company sources products from a "low-tariff country" compared to competitors, which should help maintain pricing. The firm also emphasized the acceleration in recurring service revenues during the fourth quarter, with momentum continuing into fiscal year 2026.

The research firm expressed satisfaction with Napco receiving "a clean and unqualified audit opinion," suggesting accounting concerns should now be behind the company. Craig-Hallum noted that despite uneven stock performance and company execution over the past year, Napco’s recurring service revenues have grown steadily, providing investors with "high visibility on cash flow."

In other recent news, Napco Security Technologies reported its fourth-quarter fiscal 2025 earnings, significantly surpassing analyst expectations. The company achieved an earnings per share of $0.33, outperforming the forecasted $0.27, resulting in a 22.22% surprise. Additionally, Napco’s revenue reached $50.7 million, exceeding the anticipated $44.38 million. This marks a notable 0.8% year-over-year and 15% quarter-over-quarter increase in revenue, defying Street expectations of a 12% decline.

Analyst firms have responded positively to these developments. DA Davidson raised its price target for Napco Security Technologies to $45 from $33, maintaining a Buy rating. The firm highlighted the end of multi-quarter destocking at Napco’s largest distributors and an increase in recurring service revenue as key factors. Similarly, Needham increased its price target to $36 from $32, also maintaining a Buy rating. These updates reflect a growing confidence among analysts in Napco’s financial performance and future prospects.

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