IBD Stock Analysis
- Axon breaks out powerfully from 80.26 buy point
- Q1 earnings jumps 90%, crushing analyst views
- Relative strength line at record high
Industry Group Ranking
Cup with Handle
* Not real-time data. All data shown was captured at
2:44PM EDT on
Axon Enterprise is the IBD Stock Of The Day after the maker of Tasers, law-enforcement body cameras and cloud-based evidence storage blew past first-quarter earnings estimates late Thursday. Although the company withdrew 2020 guidance amid a coronavirus hit to government budgets, Axon stock broke out above a buy point from a cup-with-handle base.
Axon stock was added to IBD Leaderboard and SwingTrader.
Despite some uncertainty in the outlook, Axon Enterprise convinced Wall Street that it combines a recession-resistant business model with great execution and a huge opportunity for growth.
One number that Axon provided for the first time particularly stood out: 120% net revenue retention for its cloud-based software, which lets customers manage law-enforcement video footage and monitor real-time incidents remotely.
“The metric captures two key factors,” CFO Jawad Ahsan said on the Axon earnings call. “First, our annual churn is almost nil, as our customers typically sign five- to 10-year contracts.”
Second, “customers are upgrading their contracts to take advantage of all of the new software tools we have to offer.”
Axon earnings per share grew 90% to 40 cents a share, more than doubling Wall Street’s 18-cent estimate. Revenue rose 27% to $147.2 million.
Revenue from sales of law-enforcement cameras and cloud-based software licenses grew more than 40%. Taser revenue, which now accounts for about half of total revenue, grew 16%.
Axon withdrew its guidance of $100 million to $105 million in adjusted EBITDA on revenue of $615 million to $625 million, though not because of current trends.
The hit to municipal budgets and their impact on procurement by law-enforcement agencies “could materially alter our pipeline,” Axon said.
Some customers have delayed body-camera programs or subscription upgrades. Yet the coronavirus threat has led others to make Axon devices standard issue to individual officers, rather than shared.
“Even though our business has been very resilient today and our best estimates have not changed, the level of uncertainty has increased” too much to offer guidance, Axon CEO Rick Smith said.
Still, Axon offered plenty of positive indications about the outlook, even if the timing is in question.
International sales grew 38% in the quarter, as Axon closed its first sales in a number of countries. Axon Records is now being used or tested at more than a dozen agencies. This is Axon’s entry into a $4 billion market for managing law-enforcement incident reports and other data, which complements its digital video systems. Axon’s first records-management deployment to the Fresno Police Department came in September.
Axon said the city of Maricopa, Ariz., recently became the first to go live with its computer-aided dispatch system in a $2 billion market. “The goal here is to shorten the time from hello to hello,” Axon President Luke Larson said. “That’s what the industry calls the time between when somebody first calls 911 to the time an officer arrives.”
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Axon stock leapt nearly 23% to 86.13 in Friday’s stock market trading in heavy volume, clearing an 80.26 buy point, according to a MarketSmith analysis. The base is a cup-with-handle pattern. AAXN stock is now slightly extended from the 5% chase zone, with runs to 84.27.
Ahead of earnings, Axon stock reclaimed its 50-day and 200-day lines on Thursday.
This is the second breakout for Axon stock this year. Axon previously hit a buy point of 76.72 on Jan. 22. A day earlier, Axon stock had been featured as the IBD Stock Of The Day because of its favorable setup.
Axon stock continued to advance from there, rising 17.4% past the buy point to an all-time high of 90.10 on Feb. 19. Then came the coronavirus stock market crash, which took Axon stock down as much as 55.5% to its low of 50.05 on March 18.
Axon stock boasts a strong 95 IBD Composite Rating. The Composite Rating combines several key fundamental and technical factors into a single score. IBD research shows all-time stock winners often have a Composite Rating of at least 95 near the start of big runs.
The relative strength line for Axon stock broke out to new high ground on Thursday. The RS line, the blue line in the chart below, tracks a stock’s performance vs. the S&P 500 index. It’s a good way to identify leading stocks in good markets or bad.
FTC Cloud Over Axon
The coronavirus recession’s impact isn’t the only cloud hanging over Axon. The FTC has challenged Axon’s May 2018 acquisition of Vievu, which won a big contract to supply the New York Police Department in the fall of 2016. Axon argues that Vievu was a “failing firm” that had no other takers, so antitrust restrictions shouldn’t apply.
The FTC has outlined a sweeping remedy. Regulators want to have Axon transfer technology, customers and even its own employees as part of a plan to subsidize the cost of standing up a rival in the market for law enforcement body-worn cameras. It would take effect if FTC proceedings find Axon’s purchase violated antitrust rules.
The FTC’s administrative action has been stayed until June 3, 2020, due to the Covid-19 pandemic. A hearing has been rescheduled for Sept. 9.
Axon argues that the FTC administrative process is unconstitutional and wants the case heard in a neutral federal court. A federal judge dismissed Axon’s suit against the FTC, citing a lack of jurisdiction. Axon has filed an appeal with the Ninth Circuit Court of Appeals.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
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