CPI Card Group wins “Buy” rating at Roth

Roth MKM analyst Craig Irwin likes what he sees from CPI Card Group (CPI Card Group Stock Quote, Chart, News, Analysts, Financials NASDAQ:PMTS).

On February 23, the analyst initiated coverage of PMTS with a “Buy” rating and 12-month price target of $40.00.

Irwin gave an overview of his investment thesis on the stock.

“CPI provides comprehensive financial payment card solutions for customers primarily in the United States,” he wrote. “The company offers financial payment cards, including contact and contactless EMV, eco-friendly, and prepaid magnetic stripe cards, as well as the complete range of related ancillary services. Customers include large card issuers such as Visa (V-NC) and MasterCard (MA-NC), medium- and small-sized issuers, financial institutions, fintech companies, and credit unions. We believe CPI generates around two-thirds of its business from small to mid-sized issuers. Over the past several years the adoption of higher value contactless EMV solutions that carry materially higher ASPs than contact EMV cards has supported a healthy improvement in CPI’s profitability. We believe the company has also benefited from share gains, and CPI’s November 2022 announcement of plans to increase available capacity by 50% likely reflects further anticipated gains, and we observe recent CAPEX remains well above long-term maintenance levels. The positive long-term trajectory was interrupted by an end to overbuying during the COVID-19 pandemic when customers moved to mitigate supply chain risks. Now we expect this overhang to be resolved in 2H24 uncovering leverage to long-term stable growth.”

Irwin thinks the company will generate EBITDA of $87.7-million on revenue of $446.7-million in fiscal 2023. He expects those numbers will grow to EBITDA of $89.3-million on a topline of $455.0-million in fiscal 2024.

The analyst notes that CPI Card Group has expanded its margin mix of late.

“Card manufacturing is a highly automated, fixed cost, capital light business where CPI greatly benefits from scale,” he said. “The company has reported gross margins expanding from 30.2% in 2018 to 36.9% in 2022, reflecting an ongoing shift to higher margin contactless cards, operational efficiencies, and operating leverage.”