Allegro MicroSystems Being The Leader In Critical Magnetic Sensors For EVs Justifies Premium Valuation: Analyst

Bank of America Securities (BofA) analyst Vivek Arya has reinstated its coverage of Allegro Microsystems ALGM with a Buy rating and a price forecast of $38 per share.

Arya highlighted that Allegro is the leader in producing magnetic sensors critical to the operation of electric vehicles (EVs) and safety-focused advanced driver assist systems (ADAS).

The analyst also mentioned that the company is poised to gain from emerging opportunities in power management chips for data centers and clean energy.

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Despite short-term weakness in auto demand, the analyst asserted that Allegro is poised for a cyclical recovery, potentially driving an industry-leading 13% sales and 46% adjusted EPS compounded annual growth rate (CAGR) from calendar 2024 to 2027. These growth projections represent 1.3 times the sales growth and 3 times the earnings growth compared to Allegro’s industry peers.

Arya highlighted a significant growth opportunity for Allegro, projecting the company will compete in a $12 billion serviceable available market (SAM) by 2030. This market, encompassing magnetic sensors (65% of Allegro’s sales) and power ICs (35%), is expected to expand at a 9% CAGR from 2024 to 2030.

Inside this market, Auto is an $8 billion SAM growing at a 7% CAGR, while Industrial is $4 billion and tracking at a 12% CAGR across multiple high-growth submarkets, the analyst pointed out. As per him, ALGM should outgrow both markets in the long run.

Arya said auto semiconductors emerge from a deep cyclical correction, where orders pulled back ~35% from the peak. The recovery could be lumpy, but the analyst noted that Allegro could benefit from a faster mix shift to autos with content-rich e-mobility features.

Arya forecasted $1.1 billion calendar 2027 sales (in line with calendar 2023 peak) at 27% EBIT margin (below 30% peak) and $1.35 in adjusted EPS (below $1.47 peak).

Arya projects a potential upside scenario where adjusted EPS could reach $2 by 2027, significantly above consensus, provided the company accelerates sales growth to 20% versus 13% from share gains, restores gross margins to 58% (currently ~46%), and achieves its 32% EBIT margin target (currently ~9%) through disciplined spending.

Arya expressed caution about the automotive semiconductor market, predicting its recovery will be slower than that of the industrial sector. He cited key headwinds: intense competition from both larger (Infineon) and smaller (Melexis) rivals, along with risks to premium auto demand from potential tariffs and changing consumer preferences.

Arya pointed to a potential stock overhang from Sanken Electric, which holds a 32% stake in the company and will be free to sell shares when its lock-up period expires in September.

A key risk, he concluded, is that Allegro’s premium valuation (35 times calendar 2026 PE) could be compressed by greater market volatility. Arya projected fiscal 2026 revenue of $831 million and adjusted EPS of $0.51.

Price Action: ALGM stock is trading higher by 8.31% to $31.03 at last check Monday.

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