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Allegion (ALLE) Displays Bright Prospects, Headwinds Persist

Zacks Equity Research
·3 mins read

On Sep 18, we issued an updated research report on Allegion plc ALLE.

In the past three months, this Zacks Rank #3 (Hold) stock has gained 1.2% compared with the industry’s growth of 12.2%.

Existing Business Scenario

Allegion expects its residential businesses to benefit from solid backlog and strength across the institutional end markets in the Americas segment. Of late, it has been experiencing improvement in demand across home builder markets and point-of-sales in the e-commerce channels. Also, the company’s electronic products business is likely to act as a long-term growth driver given its solid product portfolio, strong channel relationship and a strong customer base.

Also, over time, Allegion’s electronic security product sales have grown at a steady rate. Rising popularity for its Schlage, LCN, VON Duprin, interflex and Simons Voss branded products hold good for the company. This apart, its pricing and productivity initiatives along with its ongoing actions for optimizing and simplifying business operations are likely to prove beneficial in the quarters ahead.

Moreover, it remains committed to rewarding shareholders handsomely through dividend payments and share buyback programs. Allegion paid out dividends worth $58.7 million to shareholders and repurchased shares worth $94.1 million in the first six months of 2020. The company hiked the quarterly dividend rate by 19% in February 2020.

However, a soft demand environment across all regions on account of the coronavirus pandemic and continued weakness across residential markets, particularly in China and Australia are likely to have a bearing on Allegion’s top-line performance, going forward. Also, the company expects business divesture in Colombia and Turkey to hurt results. For 2020, it anticipates witnessing year-over-year decline in overall revenues by 9-10% on a reported basis and 8-9% on an organic basis.

In addition, Allegion’s high-debt profile poses a concern. For instance, in the last six years (2014-2019), its long-term debt rose 2.7% (CAGR). Notably, the metric was $1,428.5 million, exiting the second quarter of 2020, reflecting a marginal increase on a sequential basis. Also, the company’s weakening ability to address financial obligations are concerning. Exiting the second quarter, its times interest earned was 7.4X compared with 8.1X at the end of the previous quarter.

Stocks to Consider

Some better-ranked stocks from the same space are Ituran Location and Control Ltd. ITRN, Johnson Controls International plc JCI and NortonLifeLock Inc. NLOK. While Ituran currently sports a Zacks Rank #1 (Strong Buy), Johnson Controls and NortonLifeLock carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ituran delivered a positive earnings surprise of 15.61%, on average, in the trailing four quarters.

Johnson Controls delivered a positive earnings surprise of 13.11%, on average, in the trailing four quarters.

NortonLifeLock delivered a positive earnings surprise of 59.96%, on average, in the trailing four quarters.

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Johnson Controls International plc (JCI) : Free Stock Analysis Report
Allegion PLC (ALLE) : Free Stock Analysis Report
Ituran Location and Control Ltd. (ITRN) : Free Stock Analysis Report
NortonLifeLock Inc. (NLOK) : Free Stock Analysis Report
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