Stifel: Buy Alarm.com's 'Differentiated' Product And Cross-Selling Opportunity

In a report issued Tuesday, Stifel analysts Brad R. Reback and Jeff Captain initiated coverage of AlarmCom Hldg Inc ALRM, a small-cap cloud-based home automation and security platform provider, with a Buy rating and 12-month target price of $22.00.

The analysts believe that, over the last 15 years, the company has managed to develop a differentiated product portfolio and wide dealer network. This positions it to continue to increase its share in the overall home automation and security market, especially if it successfully leverages its network of 5,000 service providers.

Moreover, the firm thinks Alarm.com has a considerable opportunity to upsell and/or cross-sell additional solutions into its installed base of approximately 2.3 million subscribers.

According to the report, “This combination of new customer acquisition and cross/up-sell focus should enable the company to deliver ~20% annual subscription revenue growth over the next several years.”

Furthermore, international expansion is still in early stages, the experts highlight. Operations outside of North America currently account for approximately 1 percent of the company’s total revenue. They note that, while the company “must first establish a network of service providers in these new geographies before international revenue can meaningfully accelerate,” it has already “taken the first steps in capitalizing on this new opportunity with recent product launches and partnerships in Latin America (most notably Brazil, Colombia, Chile, and Mexico).”

The aforementioned growth profile, coupled with sturdy cash flow dynamics driven by a low cost of customer acquisition and robust renewal rates (in the low 90’s), should help the company deliver multiple expansion in the quarters to come and drive the stock’s valuation upwards, closer to the high-end of comparable SaaS companies.