Tuesday, Evercore ISI initiated coverage on Allegro MicroSystems (NASDAQ:ALGM) with an Outperform rating and a price target of $36.00. The firm identifies Allegro as a pivotal player in the burgeoning Internet of Things (IoT) market, anticipated to expand to tens of billions of units.
Allegro, recognized as a leading electric vehicle (EV) component supplier, also offers increasing value in internal combustion engine (ICE) vehicles due to rising silicon content, a detail Evercore ISI suggests may be overlooked by investors.
The firm predicts a significant growth trajectory for Allegro, making it one of the most compelling growth narratives within the analog and microcontroller unit (MCU) sector. Key to this outlook is the expectation of operating margin expansion by 1500 basis points over the next five years. This expansion is seen as a critical factor in driving the company's financial performance forward.
Evercore ISI also projects a considerable increase in Allegro's free cash flow per share (FCF/Shr), anticipating growth from $0.41 in the fiscal year 2023 to $1.38 by the fiscal year 2025. This forecasted growth in free cash flow is part of the basis for the firm's positive outlook on the stock.
The analyst's comments underscore the belief that Allegro's price-to-earnings (P/E) ratio will maintain a 50% premium compared to the S&P 500, reflecting strong investor confidence in the company's growth potential. The sustained premium is attributed to Allegro's solid free cash flow per share growth trajectory.
Evercore ISI's coverage initiation and price target reflect a bullish stance on Allegro MicroSystems, positioning the company as a key beneficiary of the shift towards more connected and electrically dependent automotive technologies. The target suggests a positive future for Allegro's stock performance, backed by robust market growth and financial metrics.
InvestingPro Insights
As Allegro MicroSystems (NASDAQ:ALGM) positions itself to capitalize on the Internet of Things (IoT) and electric vehicle (EV) markets, InvestingPro data provides further context to Evercore ISI's optimistic coverage. Allegro's market capitalization stands at approximately $5.07 billion, reflecting its substantial presence in the semiconductor industry. The company's P/E ratio, a metric of market expectations of earnings growth, is at 22.87, which is considered low relative to its near-term earnings growth potential. This aligns with one of the InvestingPro Tips, which highlights Allegro's trading at a low P/E ratio in the context of its expected earnings growth.
Additionally, Allegro's revenue has seen a healthy increase of 19.21% over the last twelve months as of Q3 2024, indicating a strong growth trend that supports the firm's predictions. Another key financial metric, the gross profit margin, stands at 56.05% for the same period, underscoring the company's ability to maintain profitability amidst its expansion efforts. Furthermore, with a PEG ratio of 0.5, Allegro presents an attractive investment when considering its earnings growth rate.
InvestingPro Tips also suggest that Allegro's stock price has been quite volatile, which may be an important consideration for investors seeking stability. Nonetheless, the company's strong financial health, as evidenced by its ability to cover interest payments with cash flows and liquid assets exceeding short-term obligations, provides a degree of reassurance. For those looking to explore further, InvestingPro offers additional insights on Allegro, including a total of 9 more InvestingPro Tips to help investors make informed decisions. Interested readers can take advantage of a special offer using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.