Axon Enterprise should be bought after its 15% pullback Wednesday, according to JPMorgan. Analyst Paul Chung upgraded the Taser maker to overweight from neutral, saying the stock drop following first-quarter results is a buying opportunity. “The pullback we were waiting for came sooner than expected, driven by what we see as temporary headwinds ahead of a strong upgrade cycle across body cams (Axon 4) and Taser 10,” Chung wrote to clients in a Thursday note. While the maker of Tasers and other electric weapons topped analysts’ first-quarter expectations, its gross margins were disappointing to investors. AXON 5D mountain Axon Enterprise shares 5-day On Tuesday, Axon reported adjusted earnings of 88 cents per share, exceeding analysts’ consensus estimate of 54 cents per share, according to FactSet. It posted revenue of $343 million, greater than analysts’ forecasts of $319.7 million. In addition, it raised its full-year revenue guidance. Still, “gross margins are taking a hit on product mix shift [to] Fleet and ramp in 2H product releases, which will ultimately drive higher bundle revenue and buoy overall ARR longer term, in our view,” Chung wrote, referencing annual recurring revenue . Regardless, Chung approved of Axon’s otherwise robust results, saying that his prior downgrade on the stock largely depended on its valuation. He sees the risk-reward as “more favorable at these levels today with an even better outlook on top-line.” His $236 price target implies 22% upside from Wednesday’s closing price of $192.73. The stock is up about 16% this year. Axon rose about 2.5% premarket Thursday. Over the long term, Axon will benefit from a “favorable” funding environment for public safety firms, as they expand into virtual reality, drones, records management and so on, according to the note. The analyst also expects the firm’s gross margin could get an “uplift” next year. “Longer term, we see lots to like with several growth drivers ahead, including: 1) Taser 10 seems like a no-brainer to upgrade given the material improvement in accuracy and effectiveness relative to [previous] generations,” Chung wrote. —CNBC’s Michael Bloom contributed to this report.
