Allegro MicroSystems Price Target Raised to $30 by Barclays Analyst Tom O'Malley

Barclays analyst Tom O'Malley raised Allegro MicroSystems' price target to $30 from $23 and maintained an Overweight rating. The company's results exceeded estimates due to strong industrial performance.

Title: Barclays Raises Price Target for Allegro MicroSystems to $30

Barclays analyst Tom O'Malley has raised the price target for Allegro MicroSystems (ALGM) to $30 from $23, while maintaining an Overweight rating on the stock. The adjustment follows the company's latest financial results, which slightly surpassed expectations, driven primarily by strength in its industrial segment [1].

Allegro MicroSystems is a designer, developer, fabless manufacturer, and marketer of sensor ICs and application-specific analog power ICs for automotive and industrial markets. The company's Sensor ICs enable precise measurement of motion, speed, position, and current, while its Power ICs include high-temperature and high-voltage capable motor drivers, power management, and LED driver ICs. The company operates in three primary product categories: SENSE (Current Sensors, Switches, Latches, Interface ICs), REGULATE (Regulators, ClearPower Modules, LED Drivers), and DRIVE (BLDC Drivers, Brush DC). Geographically, Allegro generates the majority of its revenue from Greater China, with additional contributions from the United States, Japan, Europe, and other regions [1].

Despite mixed financial health, Allegro maintains a strong Altman Z-Score of 7.83, indicating good financial health. However, the company reported negative earnings per share of -$0.39 and negative operating (-2.73%) and net margins (-10.07%). These figures represent significant declines from historical levels, with earnings growth down 82.2% year-over-year and EBITDA growth declining 96.6% over the same period [1].

The company's balance sheet shows strength in liquidity metrics, with a current ratio of 4.3 and quick ratio of 2.66, both above industry medians. However, the company's debt-to-equity ratio of 0.4 is substantially higher than the industry median of 0.07, potentially signaling increased financial leverage. Free cash flow metrics show modest performance, with a FCF yield of 0.36% and FCF margin of 2.87% [1].

Revenue trends show concerning patterns, with 1-year revenue growth at -28.3% and 3-year growth at -1.2%. The Piotroski F-Score of 3 indicates poor business operation, supported by warning signs such as declining revenue per share and increasing days inventory, which may suggest difficulties in selling inventory [1].

Allegro's business performance reflects challenges in maintaining profitability despite a respectable gross margin of 44.35%. The company's operational efficiency metrics show deterioration, with EBIT margin at -7.63% and EBITDA margin at 1.27%, both significantly below historical medians. Return metrics are particularly weak, with ROE at -7.24%, ROA at -4.98%, and ROIC at -1.4%, all substantially below industry benchmarks [1].

The company's growth rankings are particularly concerning, with a rank_growth score of 8 (on a scale where lower numbers indicate better performance). This aligns with the negative revenue growth trends and suggests the company is struggling to expand its top line in the current market environment [1].

Valuation and market sentiment indicate that Allegro trades at premium valuation multiples despite its financial challenges. The stock's price-to-sales ratio of 8.14 is above both the median (6.63) and high (9.88) historical ranges, while its price-to-book ratio of 6.23 sits near the upper end of its historical range. The forward P/E of 59.83 suggests investors are paying a premium for future earnings potential [1].

Analyst sentiment appears moderately positive, with an average recommendation of 1.8 (where 1 equals Strong Buy) from 12 analysts. The average price target of $37.75 represents approximately 20% upside from current levels. Institutional ownership stands at 84.85%, indicating strong professional investor interest, while insider ownership is relatively low at 2.69% [1].

Technical indicators show the stock may be oversold in the short term, with a 14-day RSI of 38.24 and 5-day RSI of 19.52. The stock currently trades above its key moving averages (SMA 50: $31.89, SMA 200: $25.06), suggesting a generally positive longer-term trend despite recent weakness [1].

References:
[1] https://www.gurufocus.com/news/3026179/allegro-microsystems-algm-price-target-lifted-by-barclays-amid-strong-industrial-performance