Last Update 19 Feb 26

Fair value Increased 6.69%

DGII: Recurring Revenue And Margin Execution Will Shape Fairly Valued Outlook

Analysts have raised their price target on Digi International to $50.50 from $47.33, citing updated views on fair value, revenue growth assumptions, profit margin expectations, and future P/E levels.

Analyst Commentary

Analysts lifting their price target to $50.50 point to updated views on what they see as fair value for Digi International, with a focus on how revenue trends, margin potential, and future P/E levels could line up over time.

Bullish Takeaways

Bullish analysts see the higher price target as better reflecting Digi International's earnings potential if the company can deliver on its revenue growth assumptions and maintain disciplined cost control.
The target move embeds expectations that future P/E levels could support the new valuation, assuming the company executes on its current plans without major missteps.
Supporters of the increase highlight the view that current pricing may not fully capture what they view as achievable profit margins, especially if operating efficiency holds up.
Some bullish analysts frame the $50.50 target as aligning the shares more closely with their framework for fair value. This framework ties together revenue outlook, margin structure, and earnings power.

Bearish Takeaways

Bearish analysts focus on the risk that revenue assumptions baked into the higher target may prove too optimistic if end markets or customer spending slow relative to current expectations.
There is concern that profit margin expectations could be hard to sustain if input costs rise or if the company needs to spend more on sales and product development to support growth.
Some cautious analysts point out that the implied future P/E could leave less room for error. This may limit upside if earnings delivery comes in below current assumptions.
More cautious voices also flag that the updated fair value view has limited buffer if execution wobbles, which could make the shares vulnerable if revenue or margins fall short of current models.

What's in the News

Digi issued earnings guidance for the second quarter of fiscal 2026, with expected revenue in a range of $124 million to $128 million. For the full year the company is targeting ARR growth of 23% and revenue growth of 14% to 18% (corporate guidance).
The company introduced Digi Ventus Managed Connectivity Solutions for its channel ecosystem, pairing Digi hardware with 24/7 support and multi carrier 5G connectivity to create recurring revenue opportunities for managed service providers and resellers (product announcement).
SmartSense by Digi launched SmartSense ONE, a modular platform that connects monitoring, operations, safety, and quality tools into a shared data model with seven core modules covering monitoring, operations, food safety, audits, maintenance, labeling, and scheduling (product announcement).
Digi plans to showcase embedded and infrastructure management solutions at CES 2026, including Digi XBee for Wi SUN, a new Digi XBee gateway, smart city demos, and serial connectivity and remote monitoring products aimed at medical, industrial, and enterprise environments (product announcement).
Digi aligned with Simetric and released an SGP.32 compatible eSIM accessory to extend eSIM orchestration and lifecycle control across its device portfolio. The company is positioning its offerings around GSMA .32 standards for distributed networking and multi carrier connectivity (client and product announcements).

Valuation Changes

Fair Value: Updated from $47.33 to $50.50, indicating a modest uplift in the assessed share value level used in the model.
Discount Rate: Adjusted slightly from 8.29% to 8.33%, implying a small change in the required return assumption.
Revenue Growth: Revised from 7.71% to 9.65%, reflecting a higher revenue growth rate assumption in the latest analysis.
Net Profit Margin: Updated from 15.10% to 13.76%, indicating a lower projected profitability level relative to revenue.
Future P/E: Shifted from 28.13x to 30.75x, pointing to a higher valuation multiple being applied in the forward earnings framework.

Shift to subscription and recurring revenue models, combined with increased demand for secure edge solutions, is boosting revenue stability, margins, and customer retention.
Agile supply chain management and M&A focus provide competitive advantages, supporting profitability, reliable hardware supply, and scalable long-term growth.
Heavy reliance on recurring revenue growth and transition toward software carries risks amid regional demand volatility, tariff exposure, rising costs, and intense competition threatening margins and market share.

Catalysts

About Digi International

Provides business and mission-critical Internet of Things (IoT) connectivity products, services, and solutions in the United States, Europe, the Middle East, Africa, and internationally.What are the underlying business or industry changes driving this perspective?

The accelerating transition of customers to Digi's subscription-based and recurring revenue solutions-including higher attach rates on IoT products such as cellular routers and infrastructure management devices-points to ongoing double-digit annual recurring revenue (ARR) growth and improved profit margins, boosting both revenue stability and long-term earnings.
Increased adoption of cloud and hybrid infrastructure, especially as enterprises and data centers pursue AI and edge deployments, is creating heightened demand for Digi's edge connectivity and remote management solutions, supporting higher sales volumes and more premium-priced contracts, which positively impact topline revenue and net margins.
The growing focus on cybersecurity and reliable network management within industrial and mission-critical sectors (utilities, transportation, etc.) is enabling Digi to command premium pricing and grow its ARR by offering secure, robust solutions, supporting higher gross margins and stickier customer relationships.
Digi's flexibility in its supply chain and successful relocation of manufacturing away from China, combined with increased tariff clarity, present a short-to-medium-term competitive advantage over less agile competitors, helping to protect margins and ensure reliable hardware supply, thereby reducing input cost volatility and supporting earnings.
Strategic priority on M&A, targeting profitable and high-ARR IoT/software businesses, positions Digi to accelerate growth in both ARR and scale, which, along with recent reductions in net debt and strong free cash flow, sets the stage for enhanced EBITDA and future earnings expansion.

Digi International Earnings and Revenue Growth

Digi International Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Digi International's revenue will grow by 5.7% annually over the next 3 years.
Analysts assume that profit margins will increase from 10.1% today to 14.6% in 3 years time.
Analysts expect earnings to reach $72.6 million (and earnings per share of $1.89) by about September 2028, up from $42.7 million today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.8x on those 2028 earnings, down from 30.0x today. This future PE is lower than the current PE for the US Communications industry at 27.2x.
Analysts expect the number of shares outstanding to grow by 1.47% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.19%, as per the Simply Wall St company report.

Digi International Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Management guidance indicates flat year-over-year revenues for 2025 and a reliance on recurring revenue growth to drive profit expansion, suggesting possible stagnation in overall topline, which could pressure revenue expectations if recurring growth slows or hardware sales decline.
Regional demand softness is noted, particularly in APAC (Asia-Pacific), with ongoing uncertainty in Europe described as a "wildcard," heightening the risk of geographic revenue shortfalls or volatility over the long term.
The company has exited manufacturing in China to mitigate known long-term risks and tariffs, but ongoing macroeconomic and trade tensions, along with tariff volatility, continue to threaten cost structures and may elevate input costs, potentially reducing net margins or EBITDA.
While the shift toward higher-margin ARR is touted as a strength, management acknowledged that this transition also dampens one-time hardware revenue-if the transition to software-led and solution-driven models stalls or meets customer resistance, it could constrain overall earnings and margin expansion.
The competitive landscape remains dynamic, with mentions of "tariff engineering" among China-based competitors and uncertainty around component costs; such factors could accelerate commoditization, increase price competition, and decrease Digi's gross margins or erode market share, impacting long-term earnings potential.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $40.5 for Digi International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $50.0, and the most bearish reporting a price target of just $30.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $497.0 million, earnings will come to $72.6 million, and it would be trading on a PE ratio of 26.8x, assuming you use a discount rate of 8.2%.
Given the current share price of $34.55, the analyst price target of $40.5 is 14.7% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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