William Blair initiated research coverage of Allegro MicroSystems, Inc. (ALGM $27.71). Allegro is a fabless semiconductor supplier of magnetic sensors, where it is the market leader, and power management integrated circuits focused on the automotive and industrial markets.
Analyst Alessandra Vecchi expects the company’s near- to medium-term revenue growth is likely to be in the midteens-plus with sustainable long-term revenue growth in the low teens. Vecchi forecasts fiscal 2022 revenue of $714.5 million and fiscal 2023 revenue of $775.5 million.
“Allegro is the No. 1 supplier of magnetic sensors,” Vecchi said, “driven by its leadership in the automotive market and diversified portfolio of magnetic sensors across switches and latches and speed/current/position sensors. Allegro is well positioned to take advantage of market tailwinds, which include the growing adoption of advanced-driver-assistance systems (ADAS) and hybrid electric vehicles (xEV). We also expect further market share momentum from the company’s xMR on silicon technology that improves energy efficiency in powertrains for both electrified and internal combustion vehicles. Within industrial, Allegro’s portfolio of market-leading current sensors and newly introduced position sensors are poised to benefit from strong tailwinds in industry 4.0, green energy, home appliances/power tools, and data center.”
Vecchi continued, “In 2016, the company embarked on a multiyear transition targeted at 1) extending its market leadership in high-growth markets such as xEV, ADAS, data center, and industry 4.0/smart factory; 2) implementing a fabless and asset-lite strategy; 3) increasing its IC design footprint and strategy; and 4) improving/expanding sales operations by restructuring OEM and distribution sales. Allegro is making strong progress toward its strategic transformation, with gross margins already improving to 51% from 40%. The March 2021 closure of the AMTC facility should improve margins by an additional 200-250 basis points throughout this fiscal year with further improvement, into the mid-50s, from revenue scale and cost benefits as new products out of UMC/TSMC ramp up, product cost reductions, and improved wafer level and final test.”
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Current Ratings Distribution (as of 6/29/21)
Outperform (Buy): 76%
Market Perform (Hold): 23%
Underperform (Sell): 1%
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Outperform (Buy): 29%
Market Perform (Hold): 11%
Underperform (Sell): 0%
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