Players in the Zacks Security and Safety Services industry are benefiting from rise in demand/or adoption of security and safety products and services. Also, improved businesses through the e-commerce platform are advantageous.
However, these players are facing end-market hurdles due to the coronavirus crisis. In addition, innovation leading to a highly-leveraged balance sheet is a concern. Four companies, Fortune Brands Home & Security, Inc. (FBHS), Allegion plc (ALLE), Ituran Location and Control Ltd. (ITRN) and Lakeland Industries, Inc. (LAKE) are likely to perform well.
About the Industry
The Zacks Security and Safety Services industry comprises companies that provide sophisticated and interactive security solutions and related services. Such products and services are mainly used for residential, commercial and institutional purposes. Meanwhile, a few industry players develop electrical weapons for personal defense, as well as military, federal, law enforcement and private security.
There are also companies, which provide solutions for the recovery of stolen vehicles, wireless communication devices, equipment for the safety of facility infrastructure and employees, a variety of services to automobile owners and insurance companies, and products for detecting hazards. A number of these companies serve the manufacturing, electronics, construction, telecommunications, aerospace, medical and other end markets.
What’s Shaping the Future of Security and Safety Services Industry?
Lingering Impact of Pandemic: End-market challenges related to the coronavirus pandemic still pose a threat to the top-line performance of many players in the industry. However, it is worth noting here that the severity of the pandemic-related woes are now subdued than what was experienced in the first half of 2020. Provider of security solutions and products Allegion plc projects revenues, both on organic and reported basis, to decrease 6-6.5% in 2020. Another player, Johnson Controls International plc (JCI) predicts first-quarter fiscal 2021 (ending December 2020) revenues to be down 5-7% from the year-ago quarter. Besides the current crisis, some of these players are facing headwinds due to high costs and expenses, strained trade relations and exposure to international operations.
Huge Debts, A Problem: Innovation plays a vital role in the industry. A constant update of products and services is required to keep up with the evolving customer needs, making steady investments necessary. In addition to these, companies often make acquisitions to broaden their product portfolios and geographical footprints. Such massive investments often leave companies with a highly leveraged balance sheet. Notably, Johnson Controls had a long-term debt of $7.5 billion as of the end of September 2020.
Favorable Trends: The industry players are poised to benefit from the surging demand for security products (especially cybersecurity-related products) owing to the need to deal with fraudulent activities like hacking. In addition, heightening concerns among corporates to provide a safe and secure working environment to workers, as well as secure facility infrastructure are major drivers for the industry. In addition to these, people preferring to buy products through on-line sites/e-commerce platforms, especially amid the pandemic, are added advantages.
Zacks Industry Rank Indicates Weak Prospects
The Zacks Security and Safety Services industry is a 23-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #218, which places it in the bottom 13% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of bleak earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry’s earnings estimates for the current year and the next year have moved 9.6% and 22.3% south from the respective figures mentioned a year ago.
Before we discuss few stocks from the industry, let’s have a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms Sector & the S&P 500
The Zacks Security and Safety Services industry has underperformed its sector and the S&P 500 in the past year. The industry gained 1.1% compared with the sector’s growth of 12.4% and the S&P 500’s rally of 12.3%.
One-Year Price Performance
Security and Safety Services Industry’s Valuation
P/E ratio is commonly used for valuing security and safety services stocks.
The industry’s forward 12-month P/E ratio is 18.7. This clearly shows that the industry is trading below the S&P 500’s forward 12-month P/E ratio of 21.88 and the sector’s 22.86.
Over the past five years, the industry has traded at the highest level of 20.18X forward 12-month P/E and the lowest level of 10.95X. The median level over the same period was 16.81X.
Security and Safety Services Industry’s Valuation Versus Sector
Security and Safety Services Industry’s Valuation Versus S&P 500
4 Security and Safety Services Stocks Moving Ahead of Others
Below we have discussed four stocks from the industry, carrying either a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) at present, which can be on investors’ list.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Fortune Brands Home & Security, Inc.: The company engages in making and selling home and security products. Solid product offerings, especially in plumbing market, as well as manufacturing footprint optimization, innovation efforts and other growth actions will benefit the company. However, the pandemic-related and a highly-leveraged balance-sheet-related threat might play spoilsport.
The company currently carries a Zacks Rank #2.
Shares of this Deerfield, IL-based company have rallied 11.7% in the past three months. It reported better-than-anticipated results in the last four quarters, with an earnings surprise of 23.02%, on average. Also, the company’s earnings estimates have moved 6.6% north for 2020 and 7.8% for 2021 in the past 60 days.
Price and Consensus: FBHS
Allegion plc: The company manufactures and distributes security products and solutions for domestic and business applications. It is poised to gain from productivity initiatives, strength in electronic products business, solid product offerings and supply-chain strength. However, the coronavirus pandemic-related woes, high debts and overseas operations remain concerns.
The stock presently carries a Zacks Rank #2.
This Dublin, Ireland-based company’s shares appreciated 4% over the past three months. It delivered better-than-expected result in three of the last four quarters, and in-line numbers in the other. The average earnings surprise for the trailing four quarters is 17.48%. In the past 60 days, the company’s earnings estimates have moved up 12.4% for 2020 and 9.1% for 2021.
Price and Consensus: ALLE
Ituran Location and Control Ltd.: The company engages in providing location-based services. Its technological advancement, solid product offerings and growing preferences for such products and services are proving beneficial. However, the pandemic-related threats are concerning.
The company currently carries a Zacks Rank of 2.
Shares of this Azor, Israel-based company depreciated 0.1% in three months’ time. It came up with better-than-anticipated results in two of the preceding four quarters, for as many misses. The average earnings surprise for the trailing four quarters was 15.61%. In the past 60 days, the company’s earnings estimates have moved 6% north for 2020 and 14.8% for 2021.
Price and Consensus: ITRN
Lakeland Industries, Inc.: The company is a specialist in making protective clothing (including disposal, fire, chemical, and heat, among others) and also provides related accessories. These products are mainly used in public and industrial markets. The pandemic-induced demand for protective equipments, diversified manufacturing capabilities and healthy supply chains are proving beneficial for the company. However, the COVID-19-related issues in the automotive, oil & gas, and other markets might hurt Lakeland.
The stock sports a Zacks Rank #1, at present.
This Decatur, AL-based company’s stock gained 0.8% in three months’ time. It delivered better-than-expected result in the last reported quarter, with earnings surpassing the estimate by a whopping 222.22%. In the past 60 days, the company’s earnings estimates have moved 41.2% north for fiscal 2021 (ending January 2021) and 6.1% for fiscal 2022 (ending January 2022).
Price and Consensus: LAKE
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Lakeland Industries, Inc. (LAKE) : Free Stock Analysis Report
Johnson Controls International plc (JCI) : Free Stock Analysis Report
Ituran Location and Control Ltd. (ITRN) : Free Stock Analysis Report
Fortune Brands Home Security, Inc. (FBHS) : Free Stock Analysis Report
Allegion PLC (ALLE) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research