On Friday, Barclays (LON:BARC) analyst Saket Kalia updated the firm's outlook on Alarm.com (NASDAQ: NASDAQ:ALRM), increasing the price target to $67 from $60 while maintaining an Equalweight rating on the stock. This adjustment follows Alarm.com's third-quarter financial performance, which surpassed Barclays' revenue projections by $9 million. The company's success in hardware sales and a 95% retention rate contributed to a better-than-anticipated growth of approximately 10% in Software (ETR:SOWGn) as a Service (SaaS) and License revenue.
Alarm.com's third-quarter earnings also revealed a significant EBITDA beat, coming in around $9 million higher than expected. This bottom-line outperformance was primarily attributed to the company's strong revenue results. However, the firm's forecast for fiscal year 2025 SaaS revenue growth was lower than anticipated, suggesting an approximate 6.5% year-over-year increase. This projection considers the impact of headwinds from ADT and a normalization of revenue from the Vivint IP license.
Despite the conservative SaaS revenue guide for FY25, Alarm.com's EBITDA outlook for the same period is optimistic. The company's guidance indicates a 19% margin, which is above Barclays' estimates and represents a 700 basis point year-over-year expansion. This robust margin forecast is believed to be driven by the maturing and increasing contributions from the company's growth businesses, allowing for a greater focus on profitability.
Barclays' revised price target is based on an 18 times multiple of the firm's estimated FY25 EBITDA of approximately $190 million. The new target reflects confidence in Alarm.com's financial trajectory, particularly in terms of EBITDA growth going forward. The analyst's commentary underscores the company's ability to balance growth and profitability, which has been a key factor in the revised price target.
In other recent news, Alarm.com's Q3 performance has led to an upgrade by Goldman Sachs, primarily due to increased software-as-a-service (SaaS) and license revenues, along with significant hardware sales. The company's net retention rate improved to 95%, and adjusted EBITDA margins expanded to 20.8%, surpassing expectations. Alarm.com's management is now aiming for higher profitability than the previously stated goal of approximately 18% in adjusted EBITDA margins. Jefferies has also initiated coverage on Alarm.com, giving the stock a Buy rating and setting a price target of $65.00, highlighting the company's sustainable growth and profitability.
Roth/MKM has maintained a Buy rating on Alarm.com but lowered the stock's price target to $73 from $78, pointing to commercial sector growth remaining higher than residential. The firm suggested that Alarm.com's shares are undervalued in relation to its growth prospects, which include video, commercial, and international markets.
Goldman Sachs initiated coverage on Alarm.com with a Neutral rating, acknowledging the company's strong market position but also noting the challenges posed by the rise of DIY security solutions and slower growth in the domestic residential security market. JPMorgan, too, maintained a neutral stance on Alarm.com, reducing the stock target from $70 to $65.
Alarm.com's recent developments include the completion of a $500 million convertible notes offering and the introduction of generative AI to the service provider support platform. The company's full-year 2024 SaaS and license revenue expectations have been raised to between $626.8 million and $627.2 million, with total revenue estimated to be between $920.8 million and $931.2 million.
InvestingPro Insights
To complement Barclays' analysis, recent data from InvestingPro offers additional perspective on Alarm.com's financial position. The company's market capitalization stands at $2.81 billion, with a P/E ratio of 26.69, indicating investor confidence in its earnings potential. Notably, Alarm.com's PEG ratio of 0.44 suggests that the stock may be undervalued relative to its earnings growth, aligning with the InvestingPro Tip that the company is "Trading at a low P/E ratio relative to near-term earnings growth."
The company's revenue for the last twelve months reached $923.82 million, with a solid gross profit margin of 64.95%. This robust margin supports Barclays' observation of Alarm.com's strong financial performance. Additionally, the EBITDA growth of 57.7% over the last twelve months reinforces the company's improving profitability, which is consistent with the analyst's positive EBITDA outlook for FY25.
An InvestingPro Tip highlights that "Management has been aggressively buying back shares," which could be interpreted as a sign of confidence in the company's future prospects. This aligns with the overall positive sentiment expressed in the Barclays report.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for Alarm.com, providing a deeper understanding of the company's financial health and market position.
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