CRDO earns price target raise at Roth

Following the company’s most recent results, Roth MKM analyst Suji Desilva has raised his price target on Credo Technology Group (Credo Technology Group Stock Quote, Chart, News, Analysts, Financials NASDAQ:CRDO).

On February 27, CRDO reported its Q3, 2024 results. The company generated GAAP net-income of $0.4-million on revenue of $53.1-per cent, a topline that was up 20 per cent over the same period a year earlier.

“In the third fiscal quarter ended January 27, 2024, Credo achieved revenue of $53.1 million, an increase of 20% compared to the prior quarter,” CEO Bill Brennan said. “This growth, and our future business expectations, continue to be driven by the accelerating opportunity for high-speed and energy-efficient connectivity solutions throughout the data infrastructure market. Credo’s SerDes technology expertise combined with our system-level, customer-centric design approach has led to our success with a diverse and growing set of industry-leading customers.”

The analyst reviewed the quarter.

“CRDO reported FY3Q24 (Jan.) revenue of $53.1m (+20% q/q, decline 2% y/y), slightly ahead of consensus,” he wrote. “Product revenue (+41% q/q) grew very strongly reflecting AEC shipment growth across multiple customers coupled with growth in broader non-AEC product lines,” he wrote. “IP licensing revenue was $1.3m (decline 83% q/q) reflecting the lumpy nature of this segment on a quarterly basis. Product gross margins improved to 61% (+800bps q/q) and benefitted from favorable mix. EPS of $0.04 was ahead of consensus expectations as CRDO sustained positive net income. CRDO guided FY4Q24 (Apr.) revenue of $59-62m (+11-17% q/q) largely in-line with consensus growth expectations of $59.8m (+15% q/q). CRDO guided overall gross margins slightly higher implying a recovery in higher-margin IP licensing revenue. CRDO’s quarter end cash balance increased to $~410m reflecting proceeds from a recent secondary funding raise of $~150m. With funding, we believe CRDO is very well funded to execute its operational plans and gain financial flexibility for any incremental inorganic strategic opportunities that can bolster the product portfolio.”

In a research update to clients February 28, Desilva maintained his “Buy” rating but raised his price target on CRDO from $24.00 to $30.00, implying a return of 36.2 per cent at the time of publication.

Desilva thinks CRDO will generate EPS of $0.08 on revenue of $192.7-million in fiscal 2024. He expects those numbers will improve to EPS of $0.23 on a topline of $269.3-million the following year.

“Our CRDO price target of $30 represents a CY25E EV/sales multiple of 17.0x, a premium versus established communications infrastructure peers average of 10.0x, reflecting CRDO’s long-term growth opportunity,” he concluded. “Impediments to achieving our valuation include macroeconomic demand impact on core audio-video segment, exposure to key automotive customer ramps and execution on the company’s roadmap products.”