International Demand For TASER 10 Will Drive Expansion, But Political Risks May Impact Profitability

Key Takeaways

• Expansion into AI-driven products and connected technologies is expected to enhance efficiency, engage new customers, and drive international revenue growth.
  
• International and enterprise bookings growth highlights significant opportunity beyond the U.S. market, supporting sustained revenue and earnings growth.
  
• Political, legal, and competitive challenges, alongside dependency on federal contracts, could impact Axon's operational costs, revenue growth, and profitability.

Catalysts

Provides public safety technology solutions in the United States and internationally.

• Launch of TASER 10, which continues to outpace its predecessor TASER 7 by 2x, along with strong demand from emerging market customers, suggests potential for significant revenue growth as it becomes a primary weapon system internationally.
  
• Investments in AI-driven products, such as the AI Era Plan and tools like Draft One, indicate a potential for increased efficiency and cost savings for customers, supporting higher adoption rates which could lead to stable or expanding net margins.
  
• The acquisition of Fusus and the integration of other connected technologies, such as cameras and sensors, indicate increased customer engagement and expansion into new customer sets, likely driving revenue growth.
  
• Significant growth in international and enterprise bookings, with international bookings growing nearly 50% sequentially in Q4, signals opportunity for Axon to expand revenue beyond the U.S. market as these groups account for over $100 billion of opportunity.
  
• Strong pipeline and future contracted bookings of over $10 billion provide visibility into several years of growth, supporting expectations for sustained revenue and earnings growth while the company continues to invest in R&D and expand its product offerings.

Axon Enterprise Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Axon Enterprise's revenue will grow by 20.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 18.1% today to 10.4% in 3 years time.
• Analysts expect earnings to reach $383.1 million (and earnings per share of $2.24) by about March 2028, up from $377.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 167.4x on those 2028 earnings, up from 109.7x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 32.2x.
• Analysts expect the number of shares outstanding to grow by 1.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.43%, as per the Simply Wall St company report.

Axon Enterprise Future Earnings Per Share Growth

Risks

• Political and legal challenges in Arizona may delay or disrupt Axon's planned investments in its headquarters campus, potentially impacting future operational costs and long-term planning. This uncertainty could lead to increased expenses or disruptions if they need to relocate, affecting net margins and earnings.
  
• Despite the strong positions in AI and drone technology, increased competition from other tech companies or unfavorable shifts in government policy support—for instance, related to tariffs or federal funding—could affect revenue growth in these emerging product areas.
  
• While Axon is experiencing rapid adoption of its AI solutions, customer budgets might not scale as quickly as assumed, resulting in slower-than-expected adoption rates, impacting expected revenue from enhanced and new product offerings.
  
• Dependency on federal and international contracts could expose Axon to geopolitical risks, policy changes, or budget cuts that might affect their revenue projections, especially with uncertainties around continued federal support for law enforcement technology.
  
• The challenges Axon faced with political processes impacting its headquarters' expansion, and the potential increase in tariffs, add layers of complexity which could lead to increased operational costs or unexpected delays, potentially affecting profitability and cash flow.

Valuation

• The analysts have a consensus price target of $665.03 for Axon Enterprise based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $800.0, and the most bearish reporting a price target of just $413.11.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.7 billion, earnings will come to $383.1 million, and it would be trading on a PE ratio of 167.4x, assuming you use a discount rate of 6.4%.
• Given the current share price of $539.99, the analyst price target of $665.03 is 18.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.