Needham cuts Faro stock rating to hold post-acquisition news

Wednesday, Needham analysts downgraded Faro Technologies (NASDAQ:FARO) stock rating from Buy to Hold following the acquisition announcement by AMETEK (NYSE:AME). The deal, made public on Tuesday, has AMETEK acquiring FARO at $44 per share. This price reflects an enterprise value to trailing twelve-month (TTM) revenue multiple of 2.7 times and a TTM adjusted EBITDA multiple of 19.8 times. According to InvestingPro data, FARO’s current EV/EBITDA stands at 25.05x, with the company’s market capitalization reaching $814 million.

Faro shares surged 35% on Tuesday after the acquisition news was released, contributing to an impressive 125% return over the past year. InvestingPro analysis indicates the stock is trading near its 52-week high of $42.40, with technical indicators suggesting overbought conditions. Needham’s downgrade comes in response to the acquisition agreement and the current market valuation of FARO shares. The analysts at Needham have previously expressed the view that FARO would benefit from being part of a larger industrial technology company, considering its scale, product offerings, and the cyclical nature of its business.

The company’s financial performance has seen significant improvements since Peter Lau took over as CEO in June 2023. While operating with a moderate debt level and maintaining strong liquidity with a current ratio of 2.31x, FARO has encountered similar revenue challenges as other industrial tech firms, influenced by weak global Purchasing Managers’ Index (PMI) data over the past two years.

The definitive agreement for AMETEK to acquire FARO is seen as a move that aligns with the market dynamics and positions FARO within a larger entity. Given the pending acquisition and the current assessment of FARO’s stock value, Needham believes the shares are now fairly priced, prompting the downgrade to a Hold rating. For deeper insights into FARO’s valuation and comprehensive analysis, access the detailed Pro Research Report available exclusively on InvestingPro.

In other recent news, Faro Technologies reported its Q1 2025 earnings, significantly surpassing analyst expectations with an earnings per share (EPS) of $0.33, compared to a forecast of $0.0922. The company’s revenue reached $82.9 million, slightly exceeding the expected $80.75 million. Following this performance, Craig-Hallum analyst Greg Palm raised the price target for Faro Technologies to $45.00, maintaining a Buy rating, citing the company’s strong performance and potential for future growth. Similarly, Needham analysts increased their price target for the company to $38.00, also retaining a Buy rating, after Faro’s first-quarter revenues exceeded projections due to improved gross margins and operational expenditure control.

Faro Technologies’ management expressed cautious optimism for the second quarter, highlighting a growing backlog attributed to new products and global partnerships. The company projects Q2 revenue between $79 million and $87 million, with EPS guidance ranging from $0.20 to $0.40. Analysts from Needham noted that Faro’s management is gaining credibility with investors, as reflected in the stock’s performance and revised guidance.

Faro Technologies continues to navigate challenging market conditions, with strategic product launches and partnership expansions contributing to its competitive position. The company launched seven major products in the last six months, enhancing its market presence. Despite potential tariff impacts and a projected 10% decline in the hardware market, Faro remains prepared with strategies to mitigate these challenges and maintain its growth trajectory.

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