William Blair initiated research coverage of NAPCO Security Technologies, Inc. (NSSC $32.46), a provider of commercial and residential intrusion, fire, access control, and door locking hardware and services.
Analyst Matthew Pfau estimated that the company would increase total revenue at a midteens percentage over the next five years due to a large market opportunity and favorable market tailwinds.
“Founded in 1969, NAPCO manufactures security products for intrusion, fire, access control, and door locking systems, with the company operating a business-to-business model and having an ecosystem of 10,000 dealers and 2,000 integrators that distribute its solution,” said Pfau. “Over the next several years we expected margins to improve substantially, with adjusted EBITDA margin eventually exceeding 40% due to both decreased costs that will begin to benefit equipment gross margins in fiscal 2024 and an increase in the mix of services revenue.
“NAPCO’s addressable market is quite large and should provide plenty of runway for the company to grow revenue,” added Pfau. “Regarding the large market opportunity, we believe there are roughly 22 million homes in the United States that have a professional security solution and we estimate that roughly one-third of these homes are on legacy, non-smart systems that are ripe for replacement, with NAPCO’s security systems being offered at a very competitive price point for dealers. And on the commercial side, we believe there are roughly 5 million to 6 million commercial properties to which NAPCO could provide its security solutions. In addition to the large size of NAPCO’s market opportunity, there are several tailwinds to growth over the next several years, which include the replacement of land lines, an increased focus on and funding for school security, and security dealers looking to build recurring revenue.”
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