On Thursday, Barclays (LON:BARC) maintained its Overweight rating on Allegro MicroSystems (NASDAQ: ALGM), but reduced the stock's price target to $25.00 from the previous $32.00. The adjustment follows Allegro's September revenue report, which aligned with expectations due to a surge in the Industrial business in China. However, the outlook for December indicates a significant decline in the Industrial sector and a four-year low in the core Automotive business, excluding e-mobility.
The company's future growth is now expected to be slower, with both the market and company growth projected to be in the low single digits. This is a deceleration from the previously described long-term growth rate of SAAR plus high single digits. Despite the general downturn, Allegro MicroSystems has identified a silver lining in the strength of China's electric vehicle (EV) market, paralleling the success seen by Texas Instruments (NASDAQ:TXN). The company's EV-focused business is considered a sustainable positive factor amidst the broader challenges.
The forecast for Allegro MicroSystems now suggests a decline of over 20% in the calendar year 2024, which contrasts with its peers, who are only expected to see an average low single-digit decrease. This has led to an anticipation of further downward revisions from competitors such as NXP Semiconductors (NASDAQ:NXPI) and Analog Devices (NASDAQ:ADI).
Barclays' analysis indicates that the revised price target may represent a low point for Allegro MicroSystems. With the recent underperformance, investors might consider returning to the stock, as the current projections are believed to have accounted for the majority of risks.
In other recent news, Allegro MicroSystems has seen significant financial and operational developments. The semiconductor company reported robust Q1 fiscal 2025 results, with sales reaching $167 million. Allegro anticipates low double-digit growth in sales for Q2, with projections ranging from $182 million to $192 million, and a gross margin between 49% and 51%.
Mizuho Securities recently adjusted its outlook on Allegro, reducing its price target from $32.00 to $26.00, while maintaining an Outperform rating. The firm revised Allegro's revenue and earnings per share (EPS) estimates for Q4 and FY25. Despite the lowered estimates, Mizuho's analyst expressed confidence in Allegro's continued success in various markets.
Additionally, Allegro MicroSystems secured a $400 million term loan deal, restructuring its existing credit agreement to optimize its financial structure and support future growth. The funds are allocated for various initiatives, including a stock repurchase agreement with Sanken Electric Co., Ltd., leading to the retirement of over 10 million shares.
UBS began coverage of Allegro with a positive outlook, issuing a Buy rating and setting a price target of $33.00. UBS's analysis suggests potential for Allegro's cyclical recovery, with EPS forecasts for FY25 and FY26 higher than consensus estimates.
Lastly, at Allegro MicroSystems' Annual Meeting of Shareholders, key decisions were ratified, including the election of directors, the appointment of PricewaterhouseCoopers, LLP as the company's independent registered public accounting firm, and an advisory vote on executive compensation.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Allegro MicroSystems' (ALGM) financial position and market performance. The company's market capitalization stands at $4.54 billion, with a P/E ratio of 52.92, indicating a relatively high valuation compared to earnings. This aligns with an InvestingPro Tip that ALGM is "Trading at a high earnings multiple."
Despite the challenges outlined in the article, ALGM maintains a strong balance sheet. An InvestingPro Tip notes that "Liquid assets exceed short term obligations," suggesting financial stability in the face of industry headwinds. This could provide some reassurance to investors concerned about the company's ability to weather the projected decline in 2024.
The stock's recent performance reflects the market's reaction to the company's outlook, with ALGM trading at 61.91% of its 52-week high. This is consistent with another InvestingPro Tip that the stock is "Trading near 52-week low," potentially presenting a value opportunity for investors who share Barclays' view that the current price may represent a low point.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for ALGM, providing a deeper understanding of the company's financial health and market position.
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