Ladenburg Analyst: Taser's Attractive Valuation Can't Be Ignored Anymore, Worth $24/Share

• TASER International, Inc. TASR shares are down 37 percent year-to-date, and are trading significantly below their 52-week high of $35.95.
• Ladenburg’s Glenn G. Mattson upgraded the rating on the company from Neutral to Buy, while establishing a price target of $24.
• Following the massive decline in Taser’s shares, the valuation appears attractive, and the company is likely to generate solid FCF, Mattson mentioned.

Analyst Glenn Mattson said that although Taser's earnings growth has been modest, the company is generating robust free cash flows, resulting in about $150 million in estimated cash and investments by the end of 2017.

Taser's shares were down more than 50 percent from their all-time high of $35.95 in June, as compared to a 2.8 percent decline in the S&P 500 during the same time period.

“We believe the stock's decline is a result of falling earnings expectations related to higher opex, growing competition in the on-officer video market, as well as a decline in the rate of growth for the weapons segment,” Mattson wrote, while adding that these concerns were valid, but already reflected in the share price.

Taser’s weapons business is generating solid cash flow and the company is investing in a massive second end market, which seems to be the right strategy. The company is investing in a strong sales channel to capture a substantial share of the market early.

The higher spending negatively impacts Taser’s EPS. Mattson commented that if the investment is successful, it would generate “a steady stream of revenue from video,” the analyst stated.

The EPS estimate for 2016 is at $0.42, below the Street consensus of $0.47, reflecting higher opex, given management’s intention to spend aggressively to gain market share. “We believe that this spending is justifiable when looking at the alternative uses of cash such as share repurchase, dividends or building reserves on the balance sheet,” Mattson wrote.