Allegro MicroSystems: A Strong Buy on IoT Growth, Market Leadership, and Expanding Margins

Mark Lipacis, an analyst from Evercore ISI, has initiated a new Buy rating on Allegro MicroSystems (ALGM).

Mark Lipacis has given his Buy rating due to a combination of factors that speak to Allegro MicroSystems’s strong position in a rapidly evolving market. The company is identified as a Tectonic Shift play in the emergent Internet of Things (IoT) market, which is projected to expand significantly, with the potential to reach tens of billions of units. This positions Allegro MicroSystems as a key supplier in a high-growth area. Moreover, the increased silicon content in internal combustion engine (ICE) vehicles is a development that is not yet fully appreciated by the investment community, providing an additional growth narrative for the company. Lipacis anticipates that Allegro’s operating margins will expand by 1500 basis points over the next five years, reinforcing a favorable outlook for the stock.

Furthermore, the valuation of Allegro MicroSystems is underpinned by the strength of its free cash flow per share, which is expected to see substantial growth from $0.41 in 2023 to $1.38 in 2025. The company’s leadership in the magnetic integrated circuit (IC) sensor market, commanding a 25% market share with about 70% of its revenues derived from this segment, is a testament to its competitive advantage. These factors, combined with a target price of $36 based on a price-to-earnings (P/E) ratio of 25 times the 2027 earnings per share estimate, discounted back at a rate of 10%, suggest a stock with solid upside potential. Nonetheless, risks such as global supply chain disruptions, emerging competition from China, and uncertainties in the automotive sector are noted, but they do not overshadow the positive outlook for Allegro MicroSystems.

Lipacis covers the Technology sector, focusing on stocks such as Nvidia, Analog Devices, and Advanced Micro Devices. According to TipRanks, Lipacis has an average return of 31.6% and a 70.67% success rate on recommended stocks.

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Allegro MicroSystems (ALGM) Company Description:

Allegro Microsystems Inc is a global designer, developer, fabless manufacturer and marketer of sensor ICs and application-specific analog power ICs enabling the important emerging technologies in the automotive and industrial markets. It is a supplier of power ICs. Its sensor ICs enable customers to precisely measure motion, speed, position and current, while its power ICs include high-temperature and high-voltage capable motor driver, power management and LED driver ICs. Its products are divided into three categories such as SENSE that include Current Sensors, Switches and Latches, Linear and Angular Position, Magnetic Speed Sensors, and Photonics; REGULATE that include Regulators, ClearPower Modules, and LED Drivers; and DRIVE that includes BLDC Drivers, Brush DC and Stepper Drivers.