ShotSpotter tumbles for a second day amid downgrade on Chicago contract fears

ShotSpotter (NASDAQ:SSTI) dropped 11% after plunging 22% on Wednesday amid speculation that the newly elected Chicago mayor could look to end the city's contract with the gunfire detection company.

On Thursday Craig-Hallum downgraded ShotSpotter (SSTI) to hold from buy and its price target was cut to $30 from $48.

The Chicago contract is up for renewal in a less than a year and "we see significant risk the contract will be terminated within six months," Craig-Hallum analyst Jeremy Hamblin wrote in a note. "While SSTI has diversified its business over the past few years, we are concerned that investors will worry about potential for other Tier 1 cities to terminate ther service."

Brandon Johnson, who was elected Chicago mayor on Tuesday after a runoff election, has said that he plans to end the use of ShotSpotter (SSTI), as some critics have alleged that it's faulty and can lead to dangerous police interactions.

Hamblin highlighted that the city of Chicago's contract is SSTI's second largest customer, accounting for ~10% of FY22 revenue and estimated at ~$7.5 million annually.

"We continue to have a favorable view of the company's LT potential but believe the uncertainty around Chicago contract is likely to limit upside in the stock until the situation is resolved," Hamblin added.

ShotSpotter CEO Ralph Clark said in a statement on Wedensday that he's optimistic that the company can continue its relationship with Chicago and mayor-elect Johnson's administration.

"We are hopeful that we can demonstrate how ShotSpotter can best provide value to Chicago, and how it can be a vital component of Mayor-elect Johnson’s holistic strategy in addressing gun violence," Clark said.

ShotSpotter (SSTI) short interest is 3%.