BofA raises GitLab stock price target to $54 on strong results

BofA Securities adjusted its price target on Credo Tech shares (NASDAQ:CRDO) downward to $275 from $340, retaining a positive Buy rating. The reduction stems from a revision of the company's growth trajectory, with BofA predicting future expansion in the optics sector over fiscal years 2027-2029. The firm anticipates a robust compound annual growth rate of 41% for sales during this period, with first-quarter fiscal 2027 sales slightly surpassing consensus estimates and second-quarter fiscal 2027 guidance exceeding expectations by 2.5%.

Credo's current stock price stands at $206.63, with a market capitalization of $38.5 billion, a decline from its previous trading value following BofA's updated assessment. The valuation adjustment reflects a focus on the company's optics business, particularly zero-forcing optics, which is expected to witness an 85% year-over-year growth rate.

BofA has raised fiscal 2028 and 2029 sales projections by 5% and 8% respectively, citing heightened confidence in the optics segment. Pro forma earnings per share estimates for fiscal years 2028 and 2029 have also been increased by 3% and 10% respectively, to $9.12 and $11.61. Despite a strong gross profit margin of 68% in the latest fiscal year, higher operating expenses associated with optical-driven activities temper the optimistic margin outlook.

Credo Tech's valuation appears undervalued based on current market levels, as determined by InvestingPro analysis. The investment firm cautions that increased optical exposure may intensify competition from established transceiver vendors and optical digital signal processing suppliers, leading to a recalibrated price-to-earnings multiple of 25x for calendar year 2028, down from the previous 34x.

This multiple falls within the peer range of 13x-35x, deemed appropriate given Credo's projected growth trajectory, which aligns with the middle of the peer range. Credo Semiconductor Corp. recently reported fiscal first-quarter results that surpassed market expectations, with earnings of $1.20 per share on revenue of $479 million.

The company experienced a 115% year-over-year revenue growth and a 10% quarter-over-quarter increase. Net income for the quarter reached a record $236.3 million, reflecting strong operating leverage and maintaining a 68% gross margin and 48.2% operating margin. Stifel echoed BofA's positive outlook, maintaining a Buy rating with a higher price target of $350.

The company's management has projected more than 85% revenue growth for fiscal 2027, with optical revenue surpassing $600 million. Credo is diversifying its product portfolio beyond AECs into optical DSPs and other advanced technologies.