Roth/MKM has maintained a Buy rating on Alarm.com (NASDAQ: NASDAQ:ALRM) but lowered the stock's price target to $73 from $78. The firm indicated that their channel check results suggest an upside to their core Software as a Service (SaaS) growth estimate, which is approximately 3.8% when excluding assumed revenue from Vivint for a year-over-year comparison.
The analysis pointed to commercial sector growth remaining higher than residential, with an approximate 21% increase.
The report also noted that hardware sales for Alarm.com are expected to perform better than previously estimated, though they are anticipated to be flat or slightly down compared to the previous year, based on service provider conversations.
Despite the reduction in the price target to $73, Roth/MKM expressed the view that Alarm.com's shares are undervalued in relation to its growth prospects, which include video, commercial, and international markets.
Alarm.com's business model, which combines hardware and SaaS offerings, benefits from the company's expansion into video security, as well as commercial and international markets. The firm's assessment suggests that these segments of Alarm.com's business are expected to drive growth and offer upside potential, despite the modest adjustment in the price target.
The update on Alarm.com's stock comes as the company continues to navigate the competitive landscape of smart home and business security solutions. With emphasis on the company's sustained growth in the commercial sector and potential in various markets, Roth/MKM's analysis underscores a positive outlook for Alarm.com's future performance.
In other recent news, Alarm.com continues to demonstrate strong performance despite facing some growth challenges. The company's Q2 results showed a significant rise in SaaS and license revenue, reaching $155.9 million, and a notable adjusted EBITDA of $42.8 million.
Despite a temporary SaaS and license revenue outage, Alarm.com has raised its full-year revenue projections and is actively expanding its commercial and international presence.
Goldman Sachs initiated coverage on the company with a neutral rating, acknowledging Alarm.com'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 following the company's Q2 results.
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
Recent InvestingPro data provides additional context to Roth/MKM's analysis of Alarm.com (NASDAQ:ALRM). The company's market capitalization stands at $2.6 billion, with a P/E ratio of 24.57, suggesting a moderate valuation relative to earnings. Alarm.com's revenue for the last twelve months as of Q2 2024 was $905.18 million, with a growth rate of 5.52%, aligning with Roth/MKM's observations on the company's growth trajectory.
InvestingPro Tips highlight that Alarm.com is trading at a low P/E ratio relative to its near-term earnings growth, which supports Roth/MKM's view that the stock may be undervalued. Additionally, the company's liquid assets exceed short-term obligations, indicating a strong financial position to support its expansion into video, commercial, and international markets.
It's worth noting that while Alarm.com is profitable and analysts predict continued profitability this year, five analysts have revised their earnings downwards for the upcoming period. This could explain Roth/MKM's decision to lower the price target despite maintaining a Buy rating.
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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