Needham has increased its price target for Napco Security Technologies, Inc. (NASDAQ:NSSC) to $49.00 from $47.00 while maintaining a Buy rating, citing the company’s stronger-than-expected fiscal second quarter performance. The stock was trading at $41.02 and the firm carries a market capitalization of $1.46 billion.
The quarter's top-line strength was clear: Napco reported revenue growth of 12.2% year-over-year, outpacing the Street's forecast of 11.3%. Earnings per share advanced 36%, a considerably larger gain than the 14.4% increase analysts had projected. Over the last twelve months Napco has been profitable, with a diluted EPS of $1.23, according to InvestingPro data.
Performance was broad-based across product and service categories. Door Locking Products expanded by nearly 13%, Intrusion & Access Alarm Products rose almost 11%, and Recurring Service revenues increased 12.5% in the period. Needham highlighted that both equipment and service margins were stronger than anticipated, contributing to gross margins that exceeded expectations.
The company’s recurring service revenue business has reached a prospective run-rate of approximately $99 million, and Napco reported a gross profit margin of 56.16% in recent data. On the back of the quarter and management’s confident commentary, Needham raised its fiscal 2026 and 2027 estimates and reiterated its Buy recommendation.
Napco’s fiscal Q2 2026 results specifically showed an earnings per share of $0.38, compared with the consensus estimate of $0.32, representing an 18.75% earnings surprise. Quarterly revenue totaled $48.17 million, modestly above the expected $47.8 million. These results collectively point to a quarter that exceeded analyst expectations on both earnings and revenue.
Despite the operational and margin improvements, InvestingPro analysis indicates the stock currently appears overvalued relative to its Fair Value, even as the company retains a "GREAT" overall financial health score. That juxtaposition of strong fundamentals and a valuation premium was noted in the assessment.
What this means for investors
- Analyst support strengthened: Needham raised its price target and its multi-year estimates following the quarter.
- Broad revenue growth: Both hardware segments and recurring services contributed to top-line gains and margin expansion.
- Valuation caveat: InvestingPro flags the shares as appearing overvalued versus Fair Value despite solid financial health metrics.
Investors and market watchers will be balancing Napco’s recent operational momentum, recurring revenue progress and margin strength against the stock’s valuation level as analysts update models and guidance for fiscal 2026 and 2027.