HSBC has upgraded Cognex (NASDAQ:CGNX) to a Buy from a Hold rating and raised its price target to $68 from $47, citing stronger-than-expected margin performance and an explicit program of cost reductions. The bank's assessment follows the machine vision company's fourth-quarter and full-year 2025 results, which included a notable expansion in adjusted EBITDA margins.
According to HSBC analyst Helen Fang, Cognex delivered a fourth-quarter 2025 adjusted EBITDA margin of 22.7%, an increase of 420 basis points year-over-year. Fang attributes the margin outperformance to the company's cost reduction initiatives, where a 300-basis-point decline in the SG&A ratio was driven by digitization and headcount reductions. HSBC's note also highlights a portfolio optimization event that produced a one-time inventory write-down of $13 billion.
For the full year 2025, Cognex's adjusted EBITDA margin reached 21.5%. HSBC further reports that the margin would be 20.7% if one excludes a one-time revenue item of $13 billion tied to medical lab automation that was recognized in the third quarter. Management has raised the company's through-cycle adjusted EBITDA margin guidance to a range of 25% to 31%, from a previous 20% to 30% band, and targets a 25% run-rate margin by the end of 2026.
As part of its operational plans, Cognex intends to realize annual cost savings of $35 million to $40 million through measures including AI-assisted coding and sales digitization. HSBC expects those savings to translate into lower SG&A and R&D spending in the second half of 2026. The company also plans to exit roughly $22 million of revenue from non-core operations, including a Japan-focused trading business, in the second quarter of 2026.
Reflecting the stronger conviction in margin expansion after the fourth-quarter operating expense control and the detailed 2026 action plan, HSBC increased its estimate for Cognex's adjusted EBITDA margin to 23.3% for 2026.
In the company's reported results, fourth-quarter revenue stood at $252 million, above management guidance of $230 million to $245 million and representing a 10% year-over-year increase. The adjusted EBITDA margin for that quarter improved to 22.7%, with the firm citing cost-reduction efforts and a pronounced decline in the SG&A ratio as the key drivers.
Those financial results have prompted multiple brokerages to revisit their views on Cognex. HSBC's upgrade to Buy and the raised $68 price target were matched by other adjustments across the sell-side: Truist Securities kept a Hold rating but raised its price target to $52; KeyBanc, impressed by execution, increased its price target to $70 while maintaining an Overweight rating; Bernstein SocGen lifted its price target to $66, citing favorable growth and margin targets; and Raymond James boosted its price target to $80 while retaining a Strong Buy stance, noting broad-based strength with particular emphasis on the Logistics segment.
The combination of rising margins, explicit cost actions and a clarified divestiture plan has shifted some analysts' views on the company's profitability trajectory. HSBC's move to Buy is premised on visible expense control in the most recent quarter and a concrete plan for further margin improvement through 2026.
Summary
HSBC upgraded Cognex to Buy and raised its price target to $68 after the company posted stronger-than-expected margins in Q4 2025 and outlined a cost-reduction program designed to lift through-cycle margins. Fourth-quarter revenue of $252 million beat guidance and adjusted EBITDA margin expanded to 22.7%, prompting several brokerages to revise ratings and price targets.
Key points
- Cognex reported Q4 2025 adjusted EBITDA margin of 22.7%, up 420 basis points year-over-year, driven by SG&A reduction and other cost actions.
- The company targets annual cost savings of $35 million to $40 million through AI-assisted coding and sales digitization, and plans to exit $22 million of non-core revenue in Q2 2026.
- Multiple brokerages updated ratings and price targets following the results; HSBC upgraded to Buy and set a $68 target, while other firms raised targets and maintained varying ratings.
Risks and uncertainties
- Reliance on one-time items - The reported full-year 2025 margins are affected by a one-time $13 billion inventory write-down and a separate $13 billion one-time revenue item from medical lab automation, which complicates the comparability of underlying margin trends.
- Execution risk on planned savings - The targeted $35 million to $40 million in annual cost reductions depend on successful implementation of AI-assisted coding and sales digitization initiatives and on achieving the timing assumptions for expense reductions in the second half of 2026.
- Revenue impact from divestitures - Exiting about $22 million of revenue from non-core businesses, including the Japan-focused trading business, could affect near-term top-line growth depending on how replacement revenue or efficiency gains materialize.