What Happened?
Shares of security systems manufacturer Napco (NASDAQ: NSSC) jumped 1.8% in the morning session after DA Davidson raised its price target on the security technology company to $50 from $45, while keeping a Buy rating.
The firm pointed to Napco's successful price increases on its equipment, which were implemented without customer resistance. Analysts also noted that trends in recurring service revenue remained highly encouraging. This part of the business has become central to the company's success, as it shifted from a pure equipment business to selling cloud-connected alarms and locking systems that carry a steady, high-margin revenue stream. This change transformed the company's financial profile. DA Davidson also highlighted Napco's healthy balance sheet, which provided it with options for future projects.
After the initial pop the shares cooled down to $43.72, up 1.3% from previous close.
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What Is The Market Telling Us
Napco’s shares are not very volatile and have only had 9 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The previous big move we wrote about was 29 days ago when the stock gained 8.9% on the news that the company received an analyst upgrade from Craig-Hallum and positive attention from other firms following strong fiscal fourth-quarter earnings results.
The security technology company reported earnings per share of $0.33, beating analyst expectations of $0.28. This strong performance prompted Craig-Hallum to upgrade the stock from Hold to Buy and raise its price target to $40.00. The firm noted that the demand environment has "markedly improved" after previous concerns, with larger distributors resuming normal ordering patterns.
Other analysts also reacted positively. DA Davidson maintained its Buy rating while significantly increasing its price target to $45 from $33. Additionally, Needham set a new price target of $36 for the stock. The combination of an earnings beat and bullish analyst sentiment appears to be driving the shares higher.
Napco is up 25% since the beginning of the year, and at $43.72 per share, has set a new 52-week high. Investors who bought $1,000 worth of Napco’s shares 5 years ago would now be looking at an investment worth $3,883.
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