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Allegion (ALLE) Down 30.3% in a Year: What's Hurting it?

·3 min read

Shares of Allegion plc ALLE have lost 30.3% compared with the industry’s decline of 36.2% over the past year. The decrease in share price primarily reflects the adverse impacts of tough end-market conditions and other challenges on its operational performance.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

The company has a market capitalization of $8.5 billion. It currently carries a Zacks Rank #4 (Sell).

Factors Affecting the Company

Allegion is experiencing weakness in its residential business, owing to supply chain challenges and shortages of electronic chips and other parts. The company’s sales in its residential business in first-quarter 2022 declined in mid-single-digit percent on a year-over-year basis. These challenges, along with logistics and labor issues, might affect its performance in the quarters ahead.

The company has a highly leveraged balance sheet. Exiting the first quarter, the company’s long-term debt was $1,426.8 million. Exiting the quarter, it had a term loan facility of $250 million (2021 Term Facility), of which $246.9 million was outstanding. Also, this month, it priced a public offering of senior notes worth $600 million in aggregate principal amount.  Considering its high debt level, its cash and cash equivalents of $305.1 million (exiting the first quarter) do not seem to be impressive.

Escalating costs and operating expenses have been a major concern for ALLE over the past few quarters. In the first quarter, the company’s cost of sales recorded an increase of 9.6% year over year. Also, its selling & administrative expenses expanded 3.4% in the quarter. The gross margin and the operating margin contracted declined 290 basis points (bps) and 270 bps, respectively, year over year. A rise in labor, raw material and freight-related costs played spoilsports.

High effective tax rates will be worrisome for the company. For 2022, Allegion predicts a 13% rate, suggesting a rise from 7.5% recorded in 2021. This is expected to adversely impact its earnings by 35 cents in the year.

Given its extensive regional presence, the company is exposed to geopolitical risks and headwinds from unfavorable movements in foreign currencies. In the first quarter, unfavorable foreign exchange movements hurt its top line by 1.9%.

The Zacks Consensus Estimate for ALLE’s earnings is pegged at $5.63 for 2022 and $6.33 for 2023, marking declines of 0.7% and 1.4% from the respective 30-day-ago figures. There has been one downward revision in estimates for both 2022 and 2023 in the past 30 days.

Stocks to Consider

Some better-ranked companies from the same space are discussed below:

KnowBe4, Inc. KNBE presently has a Zacks Rank #1 (Strong Buy). Its earnings surprise in the last four quarters was 208.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 30 days, KnowBe4’s earnings estimates have been stable for 2022. The stock has dipped 45.1% in the past year.

Napco Security Technologies, Inc. NSSC presently carries a Zacks Rank #2 (Buy). NSSC delivered a trailing four-quarter earnings surprise of 11.4%, on average.

Napco earnings estimates have been stable for fiscal 2022 (ending June 2022) in the past 30 days. Its shares have jumped 7.1% in the past year.

Intellicheck, Inc. IDN presently has a Zacks Rank #2. Its earnings surprise in the last reported quarter was 27.3%.

In the past 30 days, Intellicheck earnings estimates have increased 9.5% for 2022. The stock has plunged 78.4% in the past year.

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