On Wednesday, Stifel adjusted its stock price target for Penguin Solutions (NASDAQ: PENG), bringing it down to $27 from the previous $32, while still affirming a Buy rating on the company's shares. The revision follows Penguin Solutions' F4Q:24 (August) earnings report, which did not meet the expectations of analysts or the midpoint of the company's own guidance range. The shortfall was attributed to a less significant increase in the AI/HPC-driven IPS business than anticipated.
Although the recent earnings were below expectations, Penguin Solutions has projected that its FY25 revenue will see a year-over-year increase of 15%, which aligns with analyst sales estimates. The growth is anticipated to be led by its IPS business, which is expected to grow between 10% and 25% year-over-year. This forecast is indicative of the company's confidence in its order pipeline and its visibility with both new and existing customers.
Despite the earnings miss, Stifel's analyst believes that the company's stock should be given more consideration by investors due to its unique position in the market. Specifically, the firm notes that it is uncommon to find companies trading at 10-11 times next twelve months (NTM) earnings per share (EPS) estimates that are also generating substantial revenue from AI engagement.
In light of these factors, Stifel has opted to maintain its Buy rating for Penguin Solutions, albeit with a reduced price target. The new target is based on a 15 times next twelve months price-to-earnings (P/E) ratio. The firm's stance suggests that, despite the recent performance hiccup, Penguin Solutions' long-term prospects remain positive, particularly in relation to its involvement with AI technologies.
In other recent news, Penguin Solutions reported Q4 earnings that did not meet analyst expectations, with an adjusted earnings per share of $0.37, missing the projected $0.40. The company's revenue of $311 million also fell short of the consensus estimate of $325 million.
For fiscal year 2024, Penguin Solutions reported a revenue of $1.17 billion, a decrease from the previous year's $1.44 billion. The company's non-GAAP EPS for the year was $1.25, a significant drop from the previous year's $2.52.
Looking ahead, Penguin Solutions anticipates a fiscal 2025 EPS of $1.50-$1.90, falling below the analysts' expectation of $1.92. The company is also projecting a fiscal 2025 revenue of $260-290 million, indicating a potential 15% year-over-year growth. Recent developments include Rosenblatt and Needham maintaining a Buy rating on Penguin Solutions, despite reducing the price target to $27 and $25 respectively.
These adjustments followed the company's quarterly earnings miss and a forecast for fiscal year 2025 that did not meet analyst expectations. Despite these adjustments, both firms see a favorable risk-reward balance for investors.
InvestingPro Insights
To complement Stifel's analysis, InvestingPro data reveals some interesting insights about Penguin Solutions (NASDAQ: PENG). According to InvestingPro Tips, the company's net income is expected to grow this year, aligning with Stifel's positive outlook despite the recent earnings miss. This growth expectation is further supported by the fact that three analysts have revised their earnings upwards for the upcoming period.
InvestingPro data also indicates that Penguin Solutions has been profitable over the last twelve months, which adds credibility to the company's financial health. This profitability, combined with the expectation of continued growth, could justify Stifel's decision to maintain a Buy rating despite lowering the price target.
It is worth noting that InvestingPro Tips highlight the stock's high shareholder yield and strong free cash flow yield implied by its valuation. These factors could be particularly attractive to value-oriented investors, especially considering Stifel's observation about the company's unique position in the AI market.
For readers interested in a more comprehensive analysis, InvestingPro offers 11 additional tips for Penguin Solutions, providing a deeper understanding of the company's financial position and market dynamics.
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