What’s Behind the Drop in Axon — And Where We May Buy More Shares
We're looking past a knee-jerk market reaction, as robust prospects keep us bullish on the stock.
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Earlier, we discussed the relative outperformance we’re seeing Wednesday in shares of Marvell MRVL and ServiceNow NOW and the positive developments unfolding with Qualcomm QCOM. Those gains are being overshadowed by the drop in Axon AXON shares that comes even though Piper Sandler initiated coverage with an Overweight rating and a $893 price target.
Backing those actions, Piper cites Axon’s product innovation and large total addressable market as well as its expansion into AI and drones. We’ve argued that well-covered ground with you as well, but it’s always nice to have another firm catch up to what we’ve been doing at the Pro Portfolio, especially when their price target is higher than ours and the Wall Street consensus. For those keeping track, our AXON price target is $860, and the consensus is $888.
So, What’s Going on Then With Axon Shares?
Part of the answer could stem from AXON’s beta of 1.43, which means the shares will typically experience wider swings than the market, both up and down.
But that’s not enough to justify the move we are seeing in AXON Wednesday.
In addition to initiating coverage on AXON, Piper also initiated Motorola Solutions MSI, but in that case, with a Neutral rating and a $495 target. While Piper likes Motorola’s state and local government exposure, it cites slowing bookings growth as a reason for its Neutral rating. In reviewing the company’s June-quarter earnings call presentation, we see its backlog level was little changed compared to the June 2024 quarter.
When we look at Axon’s future contracted bookings, we see a very different picture comparing its June quarter-end figure of $10.7 billion versus $7.5 billion exiting the June 2024 quarter. We also see steady growth in Axon’s annual recurring revenue and a steady increase in the percentage of revenue derived from subscription plans.
Axon has more favorable metrics, but the one that stands out to us is the expected EPS growth rate at Axon over the 2024-2027 period compared to Motorola. Axon is expected to deliver a compound annual EPS growth rate over that stretch just under 20% compared to 9.3% for Motorola.
As we see it, those differentiators explain Piper’s differing opinions on Axon and Motorola.
In Friday’s Weekly Roundup, we discussed the overbought condition in the S&P 500 and the Nasdaq Composite, so it shouldn’t be surprising to see some folks react to it in a knee-jerk fashion, especially given the rise in AXON shares from the near $475 bottom in early April.
Based on the above metrics, we’ll remain longer-term shareholders of Axon, especially as it reaps the benefits of AI adoption across its business, which should also drive its future contracted bookings higher.
In the midst of that knee-jerk reaction, one that has led AXON to move through their 50-day and 100-day moving averages at $760.45 and $754.88, we will want to see the shares stabilize before making a next move. And given Axon's position size in the Pro Portfolio, any move we would make would likely be one on the smaller side.
While there is support for AXON near $672 with the 200-day moving average, the shares could find their footing closer to $700. With that in mind, we’ll be watching the MACD indicator closely.
At the time of publication, TheStreet Pro Portfolio was long AXON.
