ShotSpotter selloff on Chicago election an opportunity, says William Blair

William Blair analyst Matthew Pfau says shares of ShotSpotter are down over 30% since Brandon Johnson was elected as the next mayor of Chicago as Johnson said he plans to discontinue Chicago’s use of ShotSpotter. In 2022, Chicago accounted for roughly 10% of ShotSpotter’s revenue, the analyst tells investors in a research note. The firm sees three potential outcomes: Johnson ends up not canceling the contract, Chicago cancels and comes back at a later point, or Chicago cancels and does not come back. Although Chicago canceling permanently is the least likely outcome, this is already reflected in the stock, contends William Blair. If Chicago shuts down ShotSpotter’s system, the firm does not see a lot of risk that other cities follow Chicago, given that gun violence will likely increase. Blair views ShotSpotter’s valuation as attractive for a business that, absent Chicago, it expects to grow revenue mid-teens and earnings in excess of 20% over the next several years. It says the selloff offers a buying opportunity and keeps an Outperform rating on the shares.