On Wednesday, SMART Global Holdings (NASDAQ:SGH) shares saw its price target increased to $27.00 from $24.00, while retaining a Buy rating, following a solid performance in the recent quarter.
Needham, the firm behind the rating, noted that SMART’s Intelligent Platform Solutions (IPS) segment exceeded expectations, contributing significantly to the company's operating income.
The analyst from Needham highlighted that IPS revenue was $4 million higher than their estimate, making up half of the total revenue and accounting for 84% of operating income. This performance aligns with management’s projections for a recovery in the second half of fiscal year 2024.
Although the forecast for revenue growth in the Memory Solutions and LED segments has been moderated, the analyst expressed confidence that the worst is over and that growth in fiscal year 2025 remains on track.
Needham also pointed out that SMART Global Holdings has been actively reducing debt and operational expenses. Specifically, operational expenditure in the LED segment is being trimmed in response to subdued demand. The firm anticipates that SMART will keep its net leverage below 2 times. These strategic financial maneuvers are partly compensating for the lowered revenue estimates.
The revised price target of $27 is based on a multiple of 13 times the firm's calendar year 2025 earnings per share estimate of $2.09. Needham projects that as the IPS segment grows in terms of revenue share and profitability, SMART Global Holdings' valuation multiple will likely increase.
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