All European Defense Groups Expected to Lift Guidance, But Possibly Not This Year — Market Talk

Axon Enterprise, Inc. AXON reported better-than-expected fourth-quarter 2024 results on Tuesday. Earnings per share surpassed the Zacks Consensus Estimate by 36% and surged 84.1% year over year.

Total revenues of $575.1 million surpassed the consensus estimate of $566.1 million and increased 34% year over year. The fourth-quarter results benefited from solid momentum in its TASER and Software & Sensors segments.

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AXON has been reporting strong earnings results courtesy of solid financial and operational performance from both of its segments. The public safety technology solution provider surpassed expectations in each of the trailing four quarters, with an average earnings surprise of 21.6%.

Factors Contributing to Axon Stock’s Performance

Axon’s TASER segment is thriving on the back of strong demand for TASER devices and growing adoption of its virtual reality training solutions. Segmental revenues jumped 37.1% year over year to $221.2 million in the fourth quarter. The company continues to witness growing popularity for its next-generation TASER 10 devices, whose shipment began in first-quarter 2023. Also, growth in cartridge revenues, driven by higher adoption of the TASER products, has been driving the segment’s performance. In 2024, AXON shipped more than 200,000 TASER devices, 300,000 body cameras and 9 million cartridges.

The addition of new users and associated devices to the Axon network is aiding the Software & Sensors segment. Increased adoption of Axon Evidence and premium software offerings are driving Cloud and Services’ growth within the segment. Cloud and Services revenues climbed 40.6% to $230.3 million in the fourth quarter.

Axon introduced its next-generation body-worn camera, Axon Body 4, in April 2023. With upgraded features such as a bi-directional communications facility and a point-of-view camera module option, this body camera is generating significant demand, thus bolstering the segment’s growth. Shipment of this body camera began in June 2023 and the customer response has been impressive so far. Within the Software & Sensors segment, Sensors & Other revenues rose 17.5% to $123.6 million, supported by increased demand for Axon Body cameras.

The company’s investments in newer areas within the software business, like AI products, real-time operations, drones and robotics, bode well for growth. This, along with the strength in the TASER 10 device, led it to provide a bullish guidance. For 2025, Axon expects revenues to be in the band of $2.55-$2.65 billion, indicating growth of approximately 25% year over year. Adjusted EBITDA is expected to be in the range of $640-$670 million, implying an adjusted EBITDA margin of about 25%.

AXON remains focused on strategic collaborations with other companies to expand its product offerings and customer base. In June 2024, Axon entered into a partnership with Skydio (a leading U.S. drone manufacturer) to introduce a comprehensive line of drones in public safety that includes a scalable Drone as First Responder (DFR) solution. The offering incorporates autonomous drones, onsite docking stations and integrated flight control solutions from Skydio and real-time operations, real-time crime center capabilities and evidence management solutions from Axon.

The combined offering supports Axon’s DFR programs across its customer base and strengthens its market position in this category. Also, the company’s acquisition of Dedrone (in October 2024), a global leader in airspace security, boosted its DFR offerings.

Axon’s Northward Earnings Estimates

While the Zacks Consensus Estimate for AXON’s 2025 earnings per share has increased 2% to $6.63 in the past 60 days, the same for 2026 has increased 6.4% to $8.34.

Near-Term Concerns Prevail for Axon

The escalating costs and expenses are a concern for Axon’s bottom line. In 2024, the company’s cost of sales soared 39% year over year. The metric, as a percentage of sales, was 40.4%, up 160 basis points on high costs and expenses related to business integration activities, higher wages and stock-based compensation expenses. The increase in operating expenses has been adversely impacting the company’s margins of late. In 2024, Axon’s gross margin declined 160 basis points year over year.

AXON Shares Underperform Industry, S&P 500 & Peers

Shares of the company have lost 18.7% in the past three months compared with the Zacks Aerospace - Defense Equipment industry and S&P 500 composite’s decline of 6% and 1%, respectively. It has also underperformed compared with other industry players like Woodward, Inc. WWD and Teledyne Technologies Incorporated TDY, which have returned 2.3% and 3.2%, respectively, over the said time frame.

AXON Stock’s 3-Month Price Performance

Axon Enterprise, Inc. AXON reported fourth-quarter 2024 adjusted earnings of $2.08 per share, which surpassed the Zacks Consensus Estimate of $1.53. The bottom line surged 84.1% year over year despite a significant rise in the cost of sales.

Total revenues of $575.1 million surpassed the consensus estimate of $566.1 million and increased 33.6% year over year. The top line benefited from strong demand for TASER, Axon Body 4 and Axon Fleet 3 products. Growth in TASER and Sensors revenues, with increased adoption of premium software offerings, augmented the top-line results.

For 2024, Axon reported revenues of $2.08 billion, reflecting an increase of 33.4% year over year. The company’s adjusted earnings were $5.94 per share, higher than $4.16 in 2023.

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AXON’s Q4 Business Segment Performance

Software & Sensors: Within this segment, Cloud and Services revenues rose 40.6% to $230.3 million. The uptick was driven by new customer adoption of Axon Evidence and increased adoption of premium software offerings among existing customers. Cloud & Services’ adjusted gross margin increased year over year to 77.2% from 75.7%, driven by higher software mix revenues relative to professional services.

Within the segment, Sensors & Other revenues climbed 17.5% to $123.6 million, driven by increased demand for Axon Body cameras. The adjusted gross margin declined to 36.2% from 47.5% in the year-ago period due to product mix and inventory reserve charges associated with legacy products.

TASER: The segment’s revenues jumped 37.1% year over year to $221.2 million, driven by growth in demand for TASER 10 and associated cartridges and services. The adjusted gross margin increased year over year to 63.7% from 57.6%, driven by investments in automation and cost reduction initiatives.

Axon Enterprise, Inc Stock Price, Consensus and EPS Surprise

Axon Enterprise, Inc price-consensus-eps-surprise-chart | Axon Enterprise, Inc Quote

AXON’s Margin Profile

Axon’s cost of sales increased 37.8% year over year to $229.3 million. Selling, general and administrative expenses increased 65.3% year over year to $227 million.

Total operating expenses climbed 63.5% year over year to $361.6 million. The adjusted gross margin increased to 63.2% from 62% in the year-ago period.

AXON’s Balance Sheet & Cash Flow

At the end of fourth-quarter 2024, Axon had cash and cash equivalents of $454.8 million compared with $598.5 million at December 2023-end. Long-term lease liabilities totaled $41.4 million compared with $33.6 million at 2023-end.

In 2024, the company generated net cash of $408.3 million from operating activities, significantly higher than $189.3 million in the previous year.

Adjusted free cash flow was $344.3 million in 2024 compared with $148.1 million in the prior year.

AXON’s Outlook for 2025

For 2025, Axon expects revenues to be in the band of $2.55-$2.65 billion. The metric indicates approximately 25% year-over-year growth at the midpoint. Adjusted EBITDA is expected to be in the range of $640-$670 million, implying an adjusted EBITDA margin of about 25%.

The company expects capital expenditures to be between $140 million and $180 million. This includes investments in long-term research & development projects, continued capacity expansion, global facility build-outs and new product development. It anticipates stock-based compensation expenses to be in the range of $580-$630 million.

AXON’s Zacks Rank

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Companies

AAR Corp. AIR delivered second-quarter fiscal 2025 (ended November 2024) adjusted earnings of 90 cents per share, which beat the Zacks Consensus Estimate of 83 cents. The Zacks Rank #1 company’s bottom line increased 11% year over year, driven by higher volume and productivity gains.

Total revenues grew 25.7% year over year to $686.1 million and surpassed the consensus estimate of $652.6 million.

Woodward, Inc. WWD recorded adjusted earnings of $1.35 per share in first-quarter fiscal 2025 (ended December 2024), 7% lower than the prior-year quarter. However, the figure beat the consensus estimate of $1.14.

The Zacks Rank #2 (Buy) company reported revenues of $773 million, which decreased 2% from the year-ago quarter. The top line missed the consensus estimate of $779 million.

Leonardo DRS, Inc.’s DRS fourth-quarter 2024 adjusted earnings of 38 cents per share surpassed the Zacks Consensus Estimate of 36 cents. The bottom line increased 22.5% on a year-over-year basis.

The Zacks Rank #2 company’s net sales of $981 million beat the consensus estimate of $943 million. The top line increased 5.9% year over year.

This article originally published on Zacks Investment Research (zacks.com).

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