CPI Card Group (PMTS 3.24%) stock rose 12.2% through 12:30 p.m. ET Tuesday despite reporting only mixed results in its Q3 earnings report this morning.
On the plus side, the manufacturer of credit and debit cards for issuance by banks beat analyst revenue expectations, reporting $124.8 million in sales where $117.1 million had been expected. At the same time, CPI's profits were only $0.11 per share, far less than the predicted $0.51.
NASDAQ: PMTS
Key Data Points
CPI Q3 earnings
Sales surged 18% year over year, with CPI reporting strong sales of both debit and credit cards, and prepaid cards as well. Earnings, however, tumbled 67% as the company incurred $8.8 million in costs to refinance its debt.
As CPI explained, it redeemed its $268 million worth of senior secured notes (due in 2026 and paying 8.6% interest), and replaced them with $285 million in senior secured notes (due in 2029) paying 10% interest. The company also entered into a $75 million revolving credit facility giving it additional access to capital as needed.
The net effect of these moves will be to increase interest costs for CPI going forward -- but also to push out the due date for its debt by three years. Additionally, CPI noted that its majority stockholder sold 1.4 million shares of stock onto the public market, reducing its stake from 56% to 43% of the company, such that CPI no longer has a controlling shareholder.
Is CPI Card stock a buy?
Turning to guidance, CPI said sales will grow in the mid- to high single digits this year (i.e., faster than previously expected), and with higher-than-expected earnings before interest, taxes, depreciation, and amortization (EBITDA) as well. Free cash flow will be "slightly below the 2023 level," versus a prior prediction of nearly a 50% reduction -- also a big improvement.
Roughly speaking, investors might therefore expect free cash flow of perhaps $25 million this year -- a guess that, if correct, could value the stock at as little as 11 times FCF. Not bad, in other words, for a company now growing sales at 18%.
