Tuesday, Jefferies began coverage on Alarm.com (NASDAQ: NASDAQ:ALRM), giving the stock a Buy rating and setting a price target of $65.00. The firm highlighted Alarm.com's sustainable growth and profitability, noting its high single-digit SaaS growth and an EBITDA margin of 18%. The current valuation of Alarm.com stands at approximately 17 times its projected 2025 EBITDA, which is below its historical average of around 24 times.
The analyst from Jefferies pointed out that although Alarm.com's stock is trading at a discount due to concerns regarding competition and its relationship with ADT, the company's leading market position and potential new growth opportunities are expected to outweigh these challenges. The firm anticipates that Alarm.com's valuation will realign with its historical levels, which is reflected in the $65 price target.
Alarm.com's market leadership and the introduction of new growth opportunities are seen as key factors that will enable the company to navigate through competitive pressures and any issues arising from its association with ADT. Jefferies projects that these strengths will help Alarm.com to maintain a strong performance.
The firm's analysis suggests that the concerns which have led to Alarm.com's discounted valuation are not enough to overshadow the company's robust fundamentals. The expectation is that the market will recognize Alarm.com's value and adjust the stock price accordingly, moving it closer to the historical average valuation.
Jefferies' initiation of coverage on Alarm.com with a Buy rating and a $65 price target is based on the belief that the company's sustained growth and solid profitability will likely lead to a reevaluation of the stock closer to its historical valuation metrics.
In other recent news, Alarm.com has been in the spotlight with its Q2 results indicating a rise in Software as a Service (SaaS) and license revenue to $155.9 million, and a significant adjusted EBITDA of $42.8 million. Despite a temporary SaaS and license revenue outage, the company has revised its full-year revenue projections upward, signaling growth.
Analysts from Roth/MKM, Goldman Sachs, and JPMorgan have voiced their respective views on the company's performance. Roth/MKM has maintained a Buy rating but reduced the stock's target price, highlighting positive growth prospects in video, commercial, and international markets.
On the other hand, Goldman Sachs and JPMorgan have initiated and maintained a neutral stance respectively, acknowledging the company's strong market position while noting the challenges posed by the rise of DIY security solutions and slower growth in the domestic residential security market. Alarm.com has also completed a $500 million convertible notes offering and introduced generative AI to its service provider support platform.
Looking ahead, the company's full-year 2024 SaaS and license revenue expectations have been raised to between $626.8 million and $627.2 million, with total revenue estimated to be between $920.8 million and $931.2 million.
InvestingPro Insights
Adding to Jefferies' positive outlook on Alarm.com (NASDAQ: ALRM), recent data from InvestingPro provides further context to the company's financial position and market performance. The company's market capitalization stands at $2.66 billion, with a P/E ratio of 25.01, slightly above the 23.17 adjusted P/E ratio for the last twelve months as of Q2 2024. This valuation is supported by a revenue of $905.18 million over the same period, with a modest growth of 5.52%.
Notably, Alarm.com's PEG ratio of 0.41 suggests that the stock may be undervalued relative to its earnings growth, aligning with Jefferies' view on the company's potential for value realization. This is further reinforced by an InvestingPro Tip indicating that the stock is trading at a low P/E ratio relative to near-term earnings growth.
Another InvestingPro Tip highlights that management has been aggressively buying back shares, which could signal confidence in the company's future prospects and potentially support stock price appreciation. This action, combined with the company's profitability over the last twelve months, as noted in another tip, may contribute to the positive outlook expressed by Jefferies.
For investors seeking a deeper understanding of Alarm.com's financial health and market position, InvestingPro offers 11 additional tips, providing a comprehensive analysis to inform investment decisions.
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