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On Thursday, Needham reaffirmed its Buy rating and $27.00 price target for Penguin Solutions (NASDAQ:PENG), following the company’s report of a strong first half for fiscal year 2025 and an updated forecast. With the stock currently trading at $18.05, significantly below analyst targets ranging from $20 to $30, InvestingPro analysis suggests the stock is currently undervalued. According to InvestingPro, the company shows promising indicators with net income expected to grow this year. Penguin Solutions’ recent financial performance was bolstered by robust sales in Advanced Compute (AC) hardware, with expectations that Integrated Memory will drive growth in the latter half of the year. Despite anticipating a sharp decline in AC hardware sales in the third quarter, which is attributed to both the usual business variability and potential reductions in government spending, Needham’s outlook remains positive.
The firm noted a slight decrease in gross margins due to an increased mix of Hardware sales, including both AC and Memory. With current gross margins at 28.86% and annual revenue of $1.24 billion, the company maintains a strong financial position. Additionally, operational expenses are expected to grow at a slower rate because of timing in Advanced Compute hiring. A key point of confidence for Needham comes from the Non-Cancellable Non-Returnable Deferred Services revenue, which suggests a favorable trajectory for the AC product mix. InvestingPro data reveals the company’s solid liquidity position, with a healthy current ratio of 2.33 indicating strong ability to meet short-term obligations.
Penguin’s involvement in the Compute Express Link (CXL) ecosystem has encountered delays, leading analysts to predict that fiscal year 2025 contributions from this area will likely be at the lower end of the projected $10-20 million range. Nevertheless, the Operational Memory Architecture (OMA) is projected to begin contributing to revenues by the end of calendar year 2026 or early 2027.
In light of these developments, Needham has made a modest increase to its fiscal year 2026 estimates. However, the price target remains steady at $27.00, which is approximately 14 times Needham’s next-generation earnings per share estimate of $2.00. The reaffirmation of the Buy rating and price target reflects Needham’s continued confidence in Penguin Solutions’ strategic direction and market position. For deeper insights into Penguin Solutions’ valuation and growth prospects, investors can access comprehensive analysis and additional ProTips through InvestingPro’s detailed research reports.
In other recent news, Penguin Solutions reported impressive financial results for the second quarter of 2025, exceeding both earnings and revenue expectations. The company achieved an earnings per share (EPS) of $0.52, significantly higher than the forecasted $0.39, and reported revenue of $366 million, surpassing the anticipated $337.42 million. This marks the fifth consecutive quarter of revenue growth for Penguin Solutions, with a year-over-year revenue increase of 28%. The company also raised its full-year revenue growth outlook from 15% to 17%.
Additionally, Penguin Solutions’ non-GAAP operating income reached $49 million, up 85% from the previous year. Analyst firms such as Stifel and JPMorgan noted the company’s strong performance, with discussions focusing on the potential impacts of tariffs and Penguin’s strategic partnerships. In particular, Penguin Solutions’ partnership with SK Telecom (NYSE:SKM) was highlighted as a promising avenue for future growth. The company’s advancements in AI infrastructure and memory solutions, including the development of a Smart Modular Optical Memory Appliance, are expected to contribute to its long-term success.
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