Allegro MicroSystems: Turnaround Potential Targeting $12 Billion Market Opportunity (Rating Downgrade)

2025-05-17 23:48:33 ET

Summary

• Allegro MicroSystems is in a turnaround phase under new CEO Mike Doogue, focusing on innovation and SAM expansion to drive long-term growth.
• Recent results remain weak, but sequential improvements in sales, bookings, and inventory reductions signal early signs of recovery.
• The company targets double-digit sales growth, gross margins of 58%+, and operating margins of 32%+ by leveraging new products and cost innovations.
• I rate ALGM a Hold, with potential to upgrade to Buy if execution improves and momentum toward ambitious growth targets materializes.

It’s been quite some time since I did my last article on automotive chipmaker, Allegro MicroSystems, Inc . ( ALGM ), wherein I reiterated my Buy rating and urged long-term investors to use the pullback to load up on the shares. Unfortunately, ALGM is down 34% since the time of that publication. Allegro hit a rough patch soon thereafter due to a combination of factors, including softer demand and inventory corrections following the pandemic-induced supply disruptions, leading to revenue and margin pressures. Specifically, Allegro saw a 14.2% revenue decline in FY 2024, with significant declines in Advanced Mobility Group and its Power Solutions Group while margins contracted as much as 1,000 bps over the past two years. ALGM shareholders had a chance to recoup some of their losses after ON Semiconductor ( ON ) proposed to acquire Allegro for $35.10 per share in an all-cash deal (ALGM traded at ~$41/share at the time of the publication). Unfortunately, that was not to be after onsemi withdrew the proposal in April due to a " lack of actionable path forward. " Last week, Allegro held its FQ425 earnings call, wherein President and CEO Mike Doogue said the company remains open to mergers if they are " … in the best interest of our stockholders . " ...

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