Digital Ally (DGLY) Prelim. Q2 Results Outpace, But Chardan Capital Remains Skeptical on FY15 Op. Income Outlook

Chardan Capital affirms Digital Ally Inc. (Nasdaq: DGLY) with a Buy rating and $20 price target following preliminary Q2 revenue results which outpaced expectations.

Analyst James McIlree commented, Digital Ally pre-released Q2 results with Q2 revenue of $5.5 million versus our $5.1 million estimate. Gross margin improved significantly over Q1 when the company was negatively impacted by supply issues for the FirstVu body cameras. Revenue guidance was maintained at $25 million for the year but the company removed operating income guidance of $2.5 million. We are maintaining our estimates for the year since we were skeptical the company would achieve the $2.5 million operating income.

On operating income: There might be some disappointment on the operating income guidance, but from our perspective, this is good news that revenue is coming in as or better than expected and operating income guidance has been reset to reflect a more reasonable level.

On valuation, McIlree said, The shares trade at 12x FTM EBITDA estimates, which is a significant discount to TASER, which trades at 36x FTM EBITDA. Using a 12x EV/EBITDA multiple on our 2016 EBITDA estimate of $6.8 million results in a price target of $20. Risks to achieving our target include further supply chain disruptions, increased competition and pressure on state and local budgets.

For an analyst ratings summary and ratings history on Digital Ally click here. For more ratings news on Digital Ally click here.

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